How to navigate the "low interest rate era"?

On May 20th, as the branches of the six major state-owned banks, along with China Merchants Bank and CEB Bank, began operations, a new round of deposit rate cuts "arrived as scheduled."

According to the announcement from Bank of China, starting from May 20th, the annual interest rate for RMB demand deposits at Bank of China has been reduced to 0.05%, and the rates for various term deposits have been averaged down by 15 to 25 basis points.

The relatively high three-year fixed deposit rate has been sharply reduced to 1.25%, lower than the latest seven-day annualized rate from Alipay.

Attached image: Bank of China's latest RMB deposit rate table

The first batch of deposit "interest rate cuts" involves Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China, Bank of China, Bank of Communications, Postal Savings Bank, and other major state-owned banks, as well as China Merchants Bank and CEB Bank, among other nationwide joint-stock banks. It is estimated that this will quickly spread across all large, medium, and small banks.

This marks the initiation of the sixth round of interest rate cuts for bank savings in the past two years.

Responding to Policy Requirements

The interest rate cuts by the major banks are clearly in response to the "package of financial policies to support market stability and expectations" mentioned at the press conference held by the State Council Information Office on May 7th, which included "price-based policies" in the monetary policy package.

At that press conference, a central bank official mentioned that they would " lower policy interest rates and reduce the interest rates of structural monetary policy tools (which refers to the interest rates at which the central bank provides relending to commercial banks), while also lowering the interest rates for provident fund loans."

On May 20th, the National Interbank Funding Center under the central bank announced the latest LPR rates, which indeed were lowered by 10 basis points across all terms.

Almost simultaneously, several major banks began announcing the news of deposit rate cuts.

Deposit Rates Generally Decreased by More Than 10 Basis Points

The latest deposit rates announced by the major state-owned banks on May 20th show that the adjustment in savings rates is significant.

Taking Bank of China as an example, the listed interest rate for demand deposits has been reduced by 5 basis points (each basis point means a change of 0.01%), while the rates for fixed deposits have been reduced by 15 to 25 basis points, and the rates for zero-balance fixed deposits have also been reduced by 15 to 25 basis points.

Among these, the listed interest rates for three-year and five-year fixed deposits have been notably reduced, both by 25 basis points.

In addition, the rates for agreed deposits have been reduced by 10 basis points, the listed interest rate for one-day notice deposits has been reduced by 10 basis points, and the rates for seven-day notice deposits have been reduced by 15 basis points. Currently, the rates for the aforementioned deposits have all been lowered to rare low levels.

Lower than Money Market Fund Rates

After this round of interest rate adjustments, the three-year fixed deposit rates of large state-owned banks have been lowered to a level even lower than the annualized yield of Yu'ebao (as shown in the figure below).

On the evening of May 20, the seven-day annualized yield of Yu'ebao was still around 1.34%.

The seven-day annualized yield of money market funds published on the TianTian Fund website is slightly higher. Recently, the higher seven-day annualized yields (excluding obviously abnormal varieties) can reach over 2%.

In addition, the "median" of over 900 money market funds also stands at 1.37%, which is relatively competitive compared to the already lowered savings rates of large banks.

Looking ahead, the trend of "activating" deposits and gradually flowing into money market funds and bond funds may be strengthened.

Bank Wealth Management Products May Become Popular

After the significant decline in deposit rates, bank wealth management products that still maintain a certain high level may also become popular.

According to statistics, whether it is large banks that have already cut rates or banks that have not yet started to cut rates, the yields of their wealth management products have not shown a significant downward trend.

Taking Bank of Communications as an example, the latest seven-day annualized yield of its "Current Yield" wealth management product on the APP is 1.37%, which is higher than the five-year savings rate of large banks.

In addition, on the APP "shelf," several closed-end wealth management products managed by Bank of Communications Wealth Management have annualized yields ranging from 1.90% to 2.3%, which are also competitive compared to savings (as shown in the figure below).

Overall, the yields of large banks' current wealth management products are relatively close. The "ICBC Wealth Management·Tianlibao Cash Management Product" on the ICBC APP can achieve a seven-day annualized yield of 1.8726%; the "Agricultural Bank of China Anxin Daily Interest Money Market Preferred" on the ABC APP can achieve a performance benchmark of 1.60-2.20%; and the "Postal Savings Bank of China Money Treasure No. 5" on the PSBC APP has a seven-day annualized yield of around 1.61%.

The yield on wealth management products from small and medium-sized banks may be more prominent, with the seven-day annualized yield of short-term wealth management products from some city commercial banks in Shanghai reaching around 4%. Of course, the yields of related products have a certain degree of volatility.

In addition, unlike the "certainty" of savings yield levels, the yield on bank wealth management may fluctuate to a certain extent, so investors should be more cautious.

Seizing the "High Ground" of Structured Savings Rates

As a rule, adjustments to deposit rates are often initiated by state-owned large banks, followed by other joint-stock banks, city commercial banks, and rural commercial banks.

If depositors have a willingness to save, they can actively seize the phase of "high ground" in deposit rates.

Jiangsu Bank, which has historically offered relatively "generous" savings rates, currently has a 3-year fixed deposit rate of 2.1%.

Nanjing Bank's 1-year, 3-year, and 5-year deposit rates are also 1.7%, 2.1%, and 1.85%, respectively, which are relatively attractive following another round of interest rate cuts.

Risk Warning and Disclaimer

The market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial conditions, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investment based on this is at one's own risk