Multiple Banks Push USD Deposit Rates Back Above 4% as Savers Weigh Returns More Carefully

USD deposit rates have rebounded at a number of banks in China recently.

Foreign-funded banks on the mainland moved first. Public Bank's Shenzhen branch offers up to 4.1% on one-year USD time deposits, while Bank of East Asia (China), HSBC China and Fubon Hua Yi Bank have generally pushed promotional rates for new customers or new funds above 4%. Fubon Hua Yi Bank, for example, offers new customers 4.15% annualized on a three-month product with a minimum deposit of $10,000. By contrast, USD time deposit rates at domestic banks are relatively lower, though some city commercial banks can reach above 3.8%.

The rise is closely tied to a shift in Federal Reserve policy. In mid-September, the Fed hiked rates by 25 basis points for the first time in more than three years, lifting the federal funds target range to 3.75%-4%, its first increase since July 2023, and market expectations for further hikes have been building.

Wu Zewei, a special research fellow at Suning Bank, told China Times that the rebound is mainly driven by the transmission of offshore USD market rates combined with banks' foreign currency liability management, with foreign-funded banks adjusting prices more aggressively thanks to their cross-border business focus and stronger ability to deploy foreign currency assets. He added that pricing will continue to track overseas monetary policy and will not keep rising in one direction.

USD deposit rates at mainland foreign banks reach as high as 4.15%

Influenced by the Fed's rate moves, more products above 4% have appeared in the mainland USD deposit market, with several banks raising rates or rolling out dedicated promotions.

At Public Bank's Shenzhen branch, for instance, a notice published on October 8 shows personal USD time deposits with a minimum of $2,000 offer annualized rates of 3.6%, 3.9%, 4% and 4.1% for one, three, six and 12 months respectively. In mid-September, the branch's 12-month USD deposit rate was still 3.9%, meaning it has been raised by 20 basis points in a short period.

Other foreign banks generally offer differentiated high-yield products for new customers and new funds. Bank of East Asia told China Times that, as of October 15, new customers depositing between $10,000 and $50,000 receive annualized rates of 3.3%, 3.4%, 3.4% and 3.35% for one, three, six and 12 months, while deposits of $50,000 and above earn 3.4%, 4.1%, 3.85% and 3.75%. Rates at the time of transaction prevail. At Fubon Hua Yi Bank, as of October 18, new customers with a minimum deposit of $10,000 get 4.15% for three months and 4.05% for six months, while new funds at the same thresholds earn 4.05% and 3.95%.

By comparison, listed USD deposit rates at domestic banks are generally lower, though there is flexibility in actual execution. Several bank account managers told the reporter that although rates shown in mobile apps are low, some city commercial banks can execute rates above 3.8% over the counter, usually subject to regional restrictions or new-customer status.

On the rebound, Wu said the core driver is the pass-through effect of rates in the offshore USD funding market, combined with banks' own foreign currency liability management needs.

Benchmark rates in the overseas USD funding market remain relatively high, giving banks decent returns on the asset side and providing a basis for raising USD deposit rates. Fluctuations in foreign currency deposit volumes at domestic banks and widening foreign currency funding gaps at some institutions are prompting them to attract depositors' funds by raising deposit rates to stabilize their foreign currency liability base. At the market level, a recovery in some investors' willingness to allocate to USD assets has also created conditions for banks to offer higher USD deposit rates.

He also cautioned that there are clear constraints on further increases. "Rate pricing will continue to track overseas monetary policy and will not keep rising in one direction."

Investors are taking a more rational approach

Faced with USD deposit rates above 4%, savers are excited but doing their sums more carefully.

Investor Ms. Jiang told the reporter that her previous high-yield USD deposit is maturing soon and she is actively looking for a new home for the money. After learning about HSBC China's 4.1% three-month product for new funds, she hesitated: "The rate is good, but the tenor is short, and cross-bank transfer fees are a cost I cannot ignore, even if it is only about a hundred yuan."

Another depositor, Xiaomao, felt the same. In her investor chat group, someone compiled a list of foreign banks offering 4% rates to new customers in order to "harvest the perks". But after carefully calculating fees and time costs, Xiaomao decided it was not worth the trouble. "Bank USD wealth management products also yield decent returns. And who knows, the Fed may hike again, so locking in a short tenor now may not really pay off."

Behind savers' careful calculations is a divergence in how banks price USD deposits.

Wu said foreign banks are more willing to raise USD deposit rates because of their natural positioning in foreign currency business and their asset-liability structure. Their business in China is characterized by cross-border foreign currency operations, with more channels for deploying foreign currency funds, and returns on the asset side can support a higher deposit funding cost. Compared with domestic banks, foreign banks have a weaker RMB retail deposit base but deeper foreign currency customer resources, making foreign currency deposits a key liability segment they focus on.

Large state-owned banks have ample foreign currency funding and less urgency to attract foreign currency deposits. Joint-stock and city commercial banks have limited channels for deploying foreign currency assets and are more cautious about costly foreign currency deposits. By attracting USD deposits with rate advantages, foreign banks can match the funding needs of their own cross-border investment, financing and corporate foreign currency settlement businesses.

A bank source told China Times that foreign banks' pricing adjustment cycles are usually short and closely follow the Fed's policy direction. Indeed, hit by the recent Fed hike, many banks in Hong Kong, China have already completed rate increases ahead of others. The source also said whether rates continue to rise or fall will depend on the direction of Fed policy.

Mainstream institutions are divided over whether the Fed will hike again this year, though they generally believe there is no basis for a long-term hiking cycle. JPMorgan expects the Fed may hike another 25 basis points at its December meeting but will not start a long-term hiking cycle extending into 2027. Goldman Sachs recently pushed back its expectation for a second hike from October to December and noted a high probability that the FOMC will ultimately conclude further hikes are unnecessary. China Merchants Securities believes oil prices will be the more decisive factor in whether the Fed hikes consecutively. If high oil prices shift from a geopolitical pulse to structurally elevated levels, cost pass-through will seep into core inflation and force the Fed to hike consecutively; if oil prices only fluctuate at highs or retreat as the US-Iran situation progresses, the impact on core inflation will be limited, supporting fewer or even a single hike.

Industry insiders said investors should take exchange rate volatility and transaction fees into account when eyeing high-yield USD deposit products, and avoid blindly chasing high rates.