"The interest rate on this term's US dollar deposits has dropped a bit again, and it may decrease further next month, so hurry up if you want to purchase." A customer manager at a foreign bank in Guangzhou has recently been "attracting customers" on social media platforms. According to the US dollar deposit interest rate table he sent, over the past three months, the highest annualized interest rate for US dollar deposits at the bank was 5.3% in June, but it fell by 10 basis points to 5.2% in July, and only 5.0% in August.
In fact, although the Federal Reserve has not officially cut interest rates, many banks have already started to "prepare in advance." On one hand, some banks have gradually reduced the interest rates on US dollar deposits to avoid potential interest rate mismatch risks; on the other hand, the performance comparison benchmarks for some banks' US dollar financial products have also been lowered. Many industry institutions believe that the timing for the Federal Reserve to cut interest rates in September is approaching. In the future, as the downward trend of US dollar interest rates is implemented, the interest rates on US dollar deposits at domestic banks will also enter an interest rate reduction range.
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It is worth noting that against the backdrop of domestic deposit interest rate cuts, many banks still have high-interest US dollar deposits that have recently regained "attention" and have begun to "attract customers" intensively. However, many in the industry believe that, considering the imminent interest rate cut by the Federal Reserve, exchange rate fluctuations may increase later, and investors need to consider their actual needs and be aware of exchange rate risks.
Urban commercial banks and foreign banks still have relatively high US dollar deposit interest rates.
After a one-year US dollar deposit matured, Lin Ming (a pseudonym), who runs a cross-border e-commerce business in Guangdong, found that the interest rates on newly issued US dollar deposits by banks have significantly decreased.
Lin Ming told the reporter that he started purchasing US dollar deposits at a city commercial bank in March of last year, depositing $50,000 for three months at an annualized interest rate of 5.5%. He subsequently deposited US dollars for different terms, all at an annualized interest rate above 5%. But now, the highest annualized interest rate offered by the customer manager is only 4.6%.
This is not an isolated case. Recently, as expectations for the Federal Reserve to cut interest rates continue to rise, many banks have reduced the interest rates on US dollar deposits.
Taking a deposit product from Jiangsu Bank as an example, which requires a minimum deposit of $10,000, the annualized interest rate for a one-month term is 4.95%, down by 10 basis points from the previous month. The annualized interest rates for three-month and six-month terms are 4.85% and 4.7%, respectively, both of which have been lowered from before.
Unlike the small adjustments made by city commercial banks, the reporter noticed that several state-owned large banks have quietly adjusted the interest rates on US dollar deposits earlier, with the highest annualized interest rate falling below 3%. A customer manager at a branch of China Construction Bank in Guangdong told the reporter that the annualized interest rate for US dollar fixed deposit products with a minimum deposit of $5,000 for one-year and two-year terms is 2.8%, and only 2.5% for a six-month term. A customer manager at a branch of Bank of China in Guangdong also said that the annualized interest rate for a one-year US dollar deposit with a minimum deposit of $10,000 is only 2.8%.
The interest rates on US dollar deposits at some foreign banks are relatively strong, with annualized interest rates still above 5%, although they have also declined from their peaks within the year. The reporter learned from a customer manager at a branch of Standard Chartered Bank that in August, the annualized interest rates for three-month, six-month, and one-year US dollar deposits for new qualified priority wealth management accounts are all 5%, down by 20 basis points, 30 basis points, and 10 basis points, respectively, from June.Additionally, there are signs of cooling in the hot dollar financial management in the first half of the year, with some financial subsidiaries beginning to lay out in advance and lower the performance comparison benchmark. Taking a certain one-year fixed-income dollar financial product of China Merchants Wealth Management as an example, the performance comparison benchmark for the latest period (from August 5, 2024, to August 5, 2025) of this product is 0.5% to 2%. In the previous investment cycle, the comparison benchmark was 2% to 4%.
The final window period for market game
The interest rates on bank dollar deposits are closely related to the actions of the Federal Reserve. In 2023, under the Federal Reserve's interest rate hike cycle, domestic dollar deposit interest rates continued to rise, with some one-year dollar deposit interest rates reaching as high as 5.5%. Central bank data shows that the interest rate on one-year large dollar deposits rose rapidly from 1.28% in January 2022 to 5.67% in March 2023.
However, in July 2023, the interest rates on dollar deposits showed differentiation. Several state-owned large banks reduced the highest dollar deposit interest rate to 2.8%, while some foreign banks and city commercial banks still maintained a dollar deposit interest rate of more than 5%.
"Recently, some city commercial banks and foreign banks have reduced the interest rates on dollar deposits, mainly to prepare in advance for the Federal Reserve's interest rate cut and to avoid potential interest rate mismatch risks," a bank industry insider in South China believes that the interest rates on commercial bank dollar deposits are related to the banks' operating foreign exchange demand and the trend of the dollar itself. Recently, the possibility of the Federal Reserve cutting interest rates is increasing, which will lead to a downward trend in the interest rates on dollar deposits and the returns on dollar financial products.
"The Federal Reserve will lower the federal funds rate, and the United States will enter an interest rate cut cycle," said Ma Kunpeng, an analyst at CITIC Construction Investment Banking, in his research report. Affected by this, it is expected that the performance comparison benchmark of dollar financial products will be reduced, but it will still be higher than all financial products; at the same time, it is expected that in order to hedge the reduction of dollar interest rates, the risk level of dollar financial products will be increased.
Although the interest rates on dollar deposits will enter a downward channel, the market enthusiasm remains high due to the relatively high interest rates. On the one hand, under the expectation of dollar interest rate cuts, some customers choose to seize the last high-interest window period and lock in higher interest rates in advance. A customer manager of a foreign bank in Guangdong told reporters that the bank's dollar deposit interest rates will be updated in September and are likely to be reduced again, so some customers with relatively certain needs such as studying abroad in the near future choose to concentrate on purchasing dollar deposits. In addition, due to the continuous reduction of RMB deposit interest rates and the gap between RMB and dollar deposit interest rates, some customers have also chosen to deposit a small proportion of dollar deposits in the near future, pursuing higher returns.
On the other hand, there are still companies that are buying a large amount of dollar deposits. On August 6, the listed company Kerui Technology (002957.SZ) issued the "Progress Announcement on the Use of Part of the Company's Idle Funds for Securities Investment." The announcement shows that the company and its subsidiaries have purchased seven fixed-term dollar deposits, with the purchase period mostly between one month and three months, and the expected annualized yield is between 5.3% and 5.6%. The total purchase amount is approximately 28 million US dollars.
The reporter noticed that the company has purchased dollar deposits many times before and has made a lot of money. In the products that have expired and been redeemed, the annualized yield is between 5.2886% and 5.6%.Beware of the Risks of Exchange Rate Fluctuations
Recently, Federal Reserve Chairman Powell sent a relatively clear signal for an interest rate cut at the Jackson Hole Central Bank Annual Meeting. The cooling of the U.S. labor market and the improvement in inflation conditions may be significant drivers for the Federal Reserve's policy "U-turn."
According to the research department of China Merchants International, a September rate cut is no longer in doubt, with expectations for two rate cuts totaling 50 basis points in September and December. Xiao Jiwen, a macro analyst at the research department of CICC, predicted in a research report that the benchmark scenario is a 25 basis point rate cut by the Federal Reserve in September, and if the non-farm data is unexpectedly weak again, a 50 basis point rate cut is also possible.
Although the U.S. dollar deposit rates of some small and medium-sized banks are still around 5%, most bank financial managers will warn of the risks of exchange rate fluctuations.
A customer manager at a bank in Dongguan told reporters that they generally advise customers who originally held U.S. dollar demand deposits to continue choosing such products. However, considering the current risks of exchange rate fluctuations, they do not recommend customers who originally held RMB to exchange currency to purchase.
"There is uncertainty from two aspects. On the one hand, there is a price difference between buying and selling foreign exchange, which results in a certain exchange loss. On the other hand, the lock-up period for term deposits is generally from 1 month to 1 year, and the market expects the Federal Reserve to cut rates in September. If future exchange rate fluctuations occur, they may cause certain losses," she believes that the current time is not the best time to "get on board" with U.S. dollar deposits.
Subsequent exchange rate fluctuations may intensify and will affect the actual returns of U.S. dollar deposits to a certain extent. Deng Lijun, the chief strategy analyst at Huajin Securities, said that historically, during the three periods of rate cuts by the Federal Reserve, the U.S. dollar index has mostly weakened, and the RMB exchange rate against the U.S. dollar has also strengthened. Recently, the U.S. dollar index has experienced a significant decline, breaking below 101 as of 12:00 on August 25, recording 100.69, a noticeable drop from the high of 103.2004 on August 15. Correspondingly, in the past month, the onshore RMB has appreciated against the U.S. dollar by more than 1,500 points, an increase of 2.1%.
Industry insiders suggest that with the expectation of the Federal Reserve's interest rate cut intensifying, investors should not only look at the surface interest rates when purchasing U.S. dollar deposits, U.S. dollar financial products, etc., but also pay more attention to the impact of exchange rate fluctuations on actual returns. Especially at the current juncture, it is advised not to blindly follow the trend and to be vigilant about exchange rate risks.
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