Recently, USD deposit rates at several banks have shown a recovery. Foreign-funded banks in the mainland were the first to make moves, with Public Bank Shenzhen Branch offering a one-year USD time deposit rate of up to 4.1%. Bank of East Asia China, HSBC China, and Fubon Hua Yi Bank have also generally pushed preferential rates for new customers or new funds above 4%. For instance, Fubon Hua Yi Bank rolled out a product for new customers with a minimum deposit of USD 10,000 and a 3-month annualized rate of 4.15%. By comparison, USD time deposit rates at domestic banks across various categories remain relatively lower, though some city commercial banks can still reach above 3.8%.

This round of rate increases is closely tied to the shift in the Federal Reserve's monetary policy. In mid-September, the Fed raised rates by 25 basis points for the first time in more than three years, lifting the federal funds rate target range to 3.75%-4%, the first hike since July 2023. Market expectations for further rate increases have been building. Wu Zewei, a special research fellow at Suzhou Commercial Bank, analyzed for the reporter that the core of this rate recovery is the combination of interest rate transmission from the offshore USD market and banks' foreign currency liability management. Foreign-funded banks, given their cross-border business positioning and stronger capacity to deploy foreign currency assets, are more aggressive in adjusting prices. At the same time, rate pricing will continue to track changes in overseas monetary policy and will not rise unilaterally in a sustained manner.

Foreign-Funded Banks in Mainland China Offer USD Time Deposit Rates Up to 4.15%

Influenced by the Fed's rate hike dynamics, the number of USD time deposit products with rates above 4% has increased recently in the mainland market, with multiple banks raising rates or launching exclusive promotions. Taking Public Bank Shenzhen Branch as an example, its latest update on October 8 showed that for individual USD time deposits with a minimum of USD 2,000, the annualized rates for 1-month, 3-month, 6-month, and 12-month terms were 3.6%, 3.9%, 4%, and 4.1%, respectively. In mid-September, the bank's 12-month USD time deposit rate was still 3.9%, meaning it has been raised by 20 basis points in a short period. Several other foreign-funded banks have generally introduced differentiated high-yield products targeting new customers and new funds. A representative from Bank of East Asia told the reporter that as of October 15, for new customers with deposits of USD 10,000 to 50,000, the annualized rates for 1-month, 3-month, 6-month, and 12-month terms were 3.3%, 3.4%, 3.4%, and 3.35%. For deposits starting at USD 50,000, the rates increased to 3.4%, 4.1%, 3.85%, and 3.75%. The actual rates are still subject to those at the time of transaction. Fubon Hua Yi Bank, as of October 18, offered new customers with a minimum deposit of USD 10,000 annualized rates of 4.15% and 4.05% for 3-month and 6-month terms, respectively. For new funds at the same deposit threshold, the rates were 4.05% and 3.95%.

In comparison, the listed USD time deposit rates at domestic banks across various categories are generally lower, but there is flexibility in actual execution. The reporter learned from consulting account managers at multiple banks that although mobile apps show lower rates, some city commercial bank counters can actually execute higher rates above 3.8%, though these typically come with regional restrictions or new customer identity requirements. Regarding this round of rate recovery, Wu Zewei analyzed for the reporter that the core driver is the transmission effect from interest rate levels in the offshore USD market, combined with banks' own foreign currency liability management needs. The interest rate benchmark in the overseas USD funding market remains at a relatively high level, allowing banks to achieve decent returns on their foreign currency asset side, which provides a foundation for raising USD deposit rates. The scale of foreign currency deposits at domestic banks has fluctuated, and some institutions face an expanding foreign currency funding gap, necessitating higher deposit rates to attract depositor funds and stabilize foreign currency liability sources. At the market level, some investors' willingness to allocate USD assets has shown a recovery, also creating market conditions for banks to offer higher-rate USD deposits. He also cautioned that there are clear constraints on further increases in USD deposit rates. "Rate pricing will continue to track changes in overseas monetary policy and will not rise unilaterally in a sustained manner."

Investors Becoming More Rational in Allocation

Faced with USD time deposit rates above 4%, savers are not only tempted but also calculating more carefully. Investor Ms. Jiang told the reporter that her previous high-yield USD deposit recently matured and she is actively looking for her next option. After inquiring about a 3-month 4.1% time deposit product for new funds at HSBC China, she hesitated: "Although the rate is good, the term is relatively short, and the cross-bank transfer fee is a cost that cannot be ignored, even if it's only about a hundred yuan."

Another depositor, Xiao Mao, felt the same way. In her investor communication group, someone had compiled a list of foreign-funded banks offering new customer rates of 4% in preparation for "harvesting the benefits." But after carefully calculating the fees and time costs, Xiao Mao decided "not to bother." "By comparison, bank USD wealth management returns are also decent. Moreover, the Fed might raise rates again later, so locking in a short term now may not really be worthwhile."

The "careful calculation" by savers reflects the divergence in USD deposit pricing among different banks. Wu Zewei analyzed for the reporter that foreign-funded banks are more willing to raise USD deposit rates due to their inherent positioning in foreign currency business and their asset-liability structure. Foreign-funded banks in China feature cross-border foreign currency business, have more diverse channels for deploying foreign currency funds, and returns on the foreign currency asset side can support higher deposit interest costs. Compared with domestic banks of various types, foreign-funded banks have a weaker RMB retail deposit base but deeper accumulation of foreign currency customer resources, making foreign currency deposits a key liability segment for them to focus on. State-owned major banks have ample foreign currency funding reserves and a lower urgency to absorb foreign currency deposits. Joint-stock banks and city commercial banks have limited scenarios for deploying foreign currency assets and are more cautious about high-cost foreign currency deposits. Foreign-funded banks can absorb USD deposits through rate advantages to match their own cross-border investment and financing needs as well as corporate foreign currency settlement business funding needs.

A bank representative revealed to the reporter that foreign-funded banks typically have shorter rate adjustment cycles, dynamically adjusting in close alignment with the Fed's policy direction. In fact, affected by the recent Fed rate hike, many banks in Hong Kong have already completed rate increases ahead of others. The representative also stated that whether rates will continue to rise or fall in the future still depends on the direction of the Fed's monetary policy. Currently, mainstream institutions are divided on whether the Fed will raise rates further within the year, but generally believe there is no basis for starting a long-term rate hike cycle. JPMorgan expects the Fed may raise rates by another 25 basis points at its December meeting, but this will not start a long-term rate hike cycle extending into 2027. Goldman Sachs recently postponed its expectation for a second rate hike from October to December and noted that there is a high probability the FOMC will ultimately conclude that further rate increases are unnecessary. China Merchants Securities believes that the more decisive factor for whether the Fed will raise rates consecutively is the future trend of oil prices. If high oil prices shift from a geopolitical pulse to structurally elevated levels, cost-push effects will seep into core inflation, forcing the Fed to raise rates consecutively. If oil prices merely fluctuate at high levels or retreat from highs as the US-Iran situation progresses, the impact on core inflation would be relatively limited, more supportive of fewer or even a single rate hike. Industry insiders say that for investors, while paying attention to high-yield USD deposit products, they still need to comprehensively consider exchange rate fluctuations and fee costs to avoid blindly chasing high yields.