RMB Breaks Above 6.70 Against the Dollar: Savers Chasing 4% USD Deposit Rates Get a Lesson in FX Risk as Principal Shrinks

With the RMB exchange rate hitting a near three-year high, are US dollar time deposits offering rates of up to 4% still worth holding?

Recently, the Federal Reserve announced a 25-basis-point hike in the federal funds rate target range - its first rate increase since July 2023.

Reporters from Time Weekly noted that since September, a number of domestic banks have quietly raised their US dollar time deposit rates. The top dollar deposit rates across banks generally stand above 2.8%, and some city commercial banks and foreign banks offer one-year dollar deposit rates as high as 4%.

Compared with RMB time deposit rates, dollar deposit rates are markedly higher. Industry insiders point out that the actual return on foreign currency deposits is determined jointly by interest income and FX gains or losses, so exchange rate volatility is the first thing investors need to consider.

On September 18, both the onshore and offshore yuan broke above 6.70 against the dollar, their strongest since January 2023. Xue Hongyan, a special researcher at Sushang Bank, told Time Weekly that a dollar time deposit looks like a deposit on the surface but embeds exchange rate risk in substance - the hidden cost most easily overlooked.

In fact, one investor who placed a one-year $4,000 time deposit at 2.8% in 2025 watched the yuan climb from 7.30 to 6.70 per dollar; converting the proceeds back into RMB now would mean a loss of about 1,650 yuan.

"If the yuan appreciates while the deposit is held, FX losses can offset or even exceed the interest income and erode the principal. Early withdrawals are mostly credited at demand-deposit rates, and a sudden sharp rise of the yuan leaves little room to stop losses in time - so it is by no means a risk-free arbitrage tool. Ordinary investors who take part should keep positions strictly controlled, favor short tenors, and adopt a currency-risk-neutral mindset," Xue stressed.

Banks Rush to Raise Dollar Deposit Rates Ahead of the Curve, with One-Year Rates up to 4%

On September 16 local time, the Federal Reserve released its September rate decision. The Federal Open Market Committee voted 12-0 to raise rates by 25 basis points, lifting the target range to 3.75%-4.00% - the Fed's first hike since July 2023.

The meeting also released updated quarterly economic projections and the dot plot: the median projection for the end-2026 policy rate rose from 3.8% in June to 4.1%. Of the 18 officials who submitted projections, 16 expect at least one more hike this year, 4 expect two more, only 2 see no further action this year, and none expects a cut this year.

On the back of hike expectations, quite a few domestic banks had already raised dollar deposit rates in advance. On September 18, Time Weekly learned from a number of state-owned large banks, joint-stock banks, city commercial banks and foreign banks that many banks' dollar time deposit rates are now close to 3%, with some reaching 4%. A client manager at a Bank of China sub-branch in Shanghai said the branch currently offers up to 3.1% annually on one-year deposits starting at $10,000, but it must be processed offline and is subject to daily quotas; the $5,000 tier starts at 2.8%, and the quoted rate is adjusted every day.

"We adjusted once in September - the one-year rate was 2.8% before and is now 2.85%," a staff member at a Bank of Communications sub-branch in Shanghai told Time Weekly.

Interviews showed that CITIC Bank, Bank of Jiangsu, Bank of Nanjing and several other banks offer one-year dollar deposit rates of 3% and have made no recent adjustments. Guangdong Huaxing Bank's dollar deposit rate is relatively high: according to the bank's staff, its one-year dollar time deposit rate can reach up to 4%, but requires a minimum deposit of $10,000.

Compared with mainland banks, foreign banks generally offer higher dollar deposit rates. Bank of East Asia's latest dollar time deposit promotional rates, released in early September, show that for new customers depositing $10,000 to under $50,000, the top annual rates for 3-month, 6-month and 12-month terms are 3.40%, 3.40% and 3.35% respectively - up 5 bp and 15 bp for the 6-month and 12-month terms versus August; for deposits of $50,000 or more, the top annual rates for the three tenors are 4.00%, 3.70% and 3.35%, up 60 bp, 15 bp and 10 bp respectively from August.

Public Bank's Shenzhen branch posted its dollar deposit rates on September 14: 3.45% for 1-month, 3.80% for 3-month, 3.80% for 6-month and 3.90% for 1-year, all with a $2,000 minimum. On September 18, the branch's staff told Time Weekly that the latest rates had moved up to 3.90%, 4.00% and 4.10% for the 3-month, 6-month and 1-year terms respectively.

As for whether deposit rates will rise further, staff at several banks said they had not yet received notice. "The top dollar time deposit rate at our bank is now 3%. Based on past experience, there may be a small upward adjustment after the Fed's hike," a joint-stock bank client manager told Time Weekly.

Lou Feipeng, a researcher at Postal Savings Bank of China, told Time Weekly that the rise in dollar deposit rates is the combined result of Fed hike expectations, banks rushing to lock in interest margins during the window and other factors. With the yuan's continued appreciation, clients holding foreign currency are less willing to convert, so banks need to raise prices to hold on to foreign currency liabilities. As domestic RMB rates trend lower, banks use high dollar rates to offset low RMB rates and optimize their liability structure.

Xue Hongyan said the increase in domestic banks' dollar deposit rates is pulled from both ends: the dollar rate center and local-foreign currency liability management. Rising expectations for Fed policy provide an anchor for onshore dollar deposit returns; meanwhile, as RMB deposit rates keep falling, banks use high dollar rates to hedge against weak RMB deposit gathering, divert household funds, and optimize foreign currency liabilities. With companies' and households' willingness to hold dollars rebounding, intensified deposit competition among Chinese and foreign banks has pushed pricing even higher.

RMB Hits Three-Year High: Watch Out for FX Risk When Allocating to Dollars

Does this Fed hike mean a new hiking cycle is about to begin?

Xue Hongyan believes this hike is more of a phased, precautionary tightening than the start of a traditionally aggressive new cycle. From the fundamentals, the US economy shows K-shaped divergence and lacks the basis for continuous, large-scale rate hikes unless runaway oil prices ignite second-round inflation effects. Although the dot plot is clearly hawkish, with most officials expecting one more hike this year, a milder expectation of a gradual, intermittent path with relatively limited cumulative increases remains more reasonable.

"The Fed's hike still supports dollar deposit rates, but banks have already partly raised them ahead of the window, so subsequent moves are more likely to be structural and modest rather than a sweeping increase across all institutions; mainstream rates are already at relatively high levels, and the room for further gains is constrained on both sides by the limited cumulative extent of Fed hikes and by expectations of eventual cuts," Xue said.

For domestic investors, although dollar deposit rates currently carry a substantial spread over RMB deposit rates, exchange rate volatility remains the primary factor to weigh.

One investor told Time Weekly that in 2025, when the exchange rate was about 7.30, he exchanged money for $4,000 and placed it in a one-year bank time deposit at 2.8%. Now that the deposit has matured and the yuan has broken above 6.70 per dollar, converting back into RMB would mean a loss even on the principal.

According to the calculation, the investor originally spent about 29,200 yuan to buy $4,000. With the deposit now matured, converting principal plus interest back at a 6.70 rate would yield only about 27,550 yuan - a loss of about 1,650 yuan, or roughly 5.7% over the year. In other words, even if he had deposited at a 4% rate last year, he would still face a paper loss today.

"The biggest risk in holding dollar time deposits is exchange rate risk - the actual return on foreign currency deposits is determined jointly by interest and FX gains or losses, and a stronger yuan can erode or even wipe out the interest income. There are also liquidity risk and rate volatility risk stemming from Fed policy uncertainty," Lou analyzed.

On September 18, both the onshore and offshore yuan broke above the 6.70 mark against the dollar, setting their strongest since January 2023.