Chinese savers seek new options as deposit rates fall below 1%

[WORLD] A historic move by China’s largest banks to slash one-year deposit rates below 1 percent for the first time has left households across the country confronting a critical question: where to place their savings now?

The decision marks a broader policy shift by Chinese authorities aimed at jumpstarting consumption and investment in an economy struggling with weak growth and mounting deflationary pressure. By diminishing the appeal of conventional savings accounts, officials hope to steer household capital toward higher-yielding investments—such as equities, bonds, or direct spending—to reignite domestic economic momentum. Analysts note the move fits into Beijing’s wider plan to pivot growth away from heavy reliance on exports and infrastructure.

The conundrum facing conservative savers emerged after six major state-owned banks, along with prominent joint-stock lender China Merchants Bank (CMB), announced on Monday that they would cut their one-year fixed deposit rate to 0.95 percent—undermining what had long been seen as a dependable, if modest, income stream.

For decades, Chinese households have leaned heavily on bank deposits as a key method of preserving wealth, maintaining some of the highest savings rates in the world. By April 2024, household deposits had surpassed ¥145 trillion ($20 trillion), highlighting the vast pool of capital now in search of new investment avenues. These latest cuts, however, mark a break from tradition, prompting even the most risk-averse savers to reconsider their strategies.

Smaller banks have also joined in, lowering deposit rates across different terms, though less aggressively. Their one-year offerings now stand at 1.15 percent, while three-year deposits hover around 1.3 percent.

This divergence underscores smaller lenders’ dependence on deposits to stay competitive in an increasingly constrained lending environment. Already grappling with thinning interest margins, regional banks face a tough balancing act: offering slightly better rates to retain savers while safeguarding profitability. Some experts caution that accelerated outflows could drive further consolidation in the sector.

In response, interest in wealth management products (WMPs) and bond funds is on the rise, although many remain cautious. “The transition from deposits to WMPs isn’t straightforward,” a Shanghai-based financial advisor noted. “Following the 2022 bond market volatility, retail investors are more sensitive to risk—even if returns are higher.” Some savers are also eyeing real estate or gold, though both come with their own uncertainties amid a faltering property sector and unstable commodity prices.

For now, the psychological shock of dipping below the 1 percent mark may carry more weight than the actual financial impact. With inflation close to zero, depositors are still seeing marginally positive real returns—but the symbolic breach has shaken public confidence. “It’s not just about the money,” said one Beijing resident. “It feels like the rules have changed, and we’re being nudged into unfamiliar territory.”