article

A new round of deposit rate cuts is underway. In less than half a month, the six state-owned banks and 18 joint-stock banks have completed the adjustment of deposit挂牌interest rates, with many urban and rural commercial banks and local banks following suit. After this round of cuts, the deposit挂牌interest rates have officially entered the "1 era", with the five-year fixed deposit rate as low as 1.8%.

"A fixed deposit from five years ago has recently matured," said a depositor named Hu Lin (a pseudonym) to the reporter. He first deposited this fund in a joint-stock bank in 2014, when the fixed deposit interest rate was still 5%. After the first maturity, the interest rate was "halved" to only 2.8%, but Hu Lin still chose a fixed deposit. Recently, this fixed deposit fund has matured again, "I didn't expect the interest rate to be only 1.85%, and I couldn't find a suitable investment and financial management product for a while."

Like Hu Lin, against the backdrop of deposit rate cuts, many depositors are holding "nowhere to place" funds and have started the "moving" mode again. In addition to low-risk and stable deposit substitutes such as insurance and large-amount certificates of deposit, fixed-income financial management and short-term bond funds have also become the choices of depositors.

Industry insiders believe that the phenomenon of deposit migration will continue in the future, and it is expected that low-risk and stable products will continue to be favored. Residents should also balance the relationship between risk and return according to their own needs when choosing such products and choose carefully.

Advertisement

Low-risk and stable investment products are popular.

With the deposit挂牌interest rate entering the "1 era", savings insurance products represented by traditional incremental life insurance products have become popular again with an absolute advantage interest rate of 3%. The first financial reporter visited many bank outlets and found that many residents came to consult insurance products.

Some residents said to the reporter that they have recently received many recommendations from financial managers, saying that the insurance preset interest rate will be reduced to 2% next month, and the current 3% interest rate products will soon be sold out. "Take advantage of this wave to have a look, after all, there are not many stable investment products with a 3% yield on the market now."

A financial manager of a joint-stock bank said to the reporter that the current insurance products have an interest rate advantage compared to deposits and financial management. When customers consult substitutes, they are often the main recommended products, especially for long-term investors (more than 5 years) and low-risk preference investors.

Recently, with the policy of the insurance product preset interest rate being reduced again, the insurance industry has once again set off a "speculation on the suspension of sale" trend. The reporter noticed on many Internet platforms that many financial and insurance brokers are promoting insurance products again, using the "preset interest rate of 3% products will be suspended soon" as a publicity gimmick to sell to residents.

"Remind you, there will be a big move in insurance next month, whether it is savings insurance or dividend insurance, it will be updated with the bank interest rate cut, and it is necessary to determine the configuration as soon as possible." When the reporter consulted an insurance broker, he received the above reply.In addition to insurance products, many residents have also begun to seek large-denomination certificates of deposit. Reporters observed on internet platforms that large-denomination CDs offered by banks have attracted the attention of numerous residents, who are sharing information about "high-interest" large-denomination CDs. Currently, the interest rates on three-year large-denomination CDs from the six major state-owned banks stand at 2.15%, while a few city commercial banks offer rates of 2.5% or higher for their three-year CDs, and private banks offer even higher rates, with the highest exceeding 3%.

Reporters learned from several bank branches that the sales of large-denomination CDs are in high demand, with many banks experiencing a "stock-out" situation. A wealth manager from a state-owned bank told reporters that many large-denomination CDs have been out of stock online, and residents unable to purchase them online are inquiring at physical branches whether there are still quotas available. "Currently, there is an overall shortage of supply. For example, last week, only the quotas for one-year terms were released on Monday morning, and they were snapped up within an hour. Whether they will continue to be released in the future depends on internal arrangements," he said.

Hu Lin told reporters that the return on five-year fixed deposits is too low, and he is watching the release times for large-denomination CDs from several banks, preparing to "camp out" for a three-year large-denomination CD from a private bank with an interest rate of about 3%. "Although it's difficult to secure, I can't find a suitable investment product. At least it can lock in a more stable return."

The enthusiasm for conservative investment products is not only reflected in insurance and large-denomination CDs but also in low-volatility financial management and funds, which have also attracted the attention of residents. When reporters asked if there were any low-risk products with a certain return guarantee, several wealth managers recommended fixed-income financial products and short-term bond funds, stating that they relatively have a return guarantee. A wealth manager from a state-owned bank said that fixed-income plus financial products have security, with bond assets as the underlying investment, stable returns, and the potential to increase return elasticity with equity assets.

"In recent years, residents' risk preferences have continued to decline, and conservative financial products such as bank deposits and insurance have gained popularity," said Zhou Yiqun, founder of Guanxiao Consulting. Against the backdrop of continuously declining market interest rates, commercial banks are also adjusting the marketing focus of financial products they sell on behalf of others.

Balancing returns and risks

Whether it's flowing into insurance, large-denomination CDs, or fixed-income financial management and short-term bond funds, all convey one message: under the catalysis of interest rate cuts, deposit funds are on the move, initiating a "migration" mode, and the ultimate destination of funds is increasingly oriented towards "low-volatility and conservative" products.

This trend is expected to continue, with industry insiders predicting that there is still room for policy interest rates to be reduced this year, which may drive the LPR (Loan Prime Rate) and deposit interest rates to be further lowered.

Xue Hongyan, deputy dean of the Star Chart Financial Research Institute, pointed out that after the decline of deposit interest rates, it will inevitably intensify the phenomenon of deposit migration, leading to a shift of some deposits to products such as money market funds, financial management, and bond funds.

Wen Bin, Chief Economist at Minsheng Bank, stated that since 2024, the growth rate of the financial management market has far exceeded that of the same period in previous years, largely due to the multiple reductions in deposit interest rates. The decline in deposit interest rates has increased the relative return on financial products, thereby promoting a large amount of funds to shift from deposits to the financial management market.The funds mentioned above are mostly likely to flow into conservative investment products. Recently, the "China Banking Wealth Management Market Semi-Annual Report (First Half of 2024)" released by the Banking Wealth Management Registration and Custody Center shows that the number of conservative (Level 2) and balanced (Level 3) investors has decreased compared to the beginning of the year and the same period last year. However, the number of cautious (Level 1) investors has increased significantly compared to the same period last year and the beginning of this year.

When investors like Hu Lin shared their wealth management plans with reporters, most mentioned key words such as "stable returns," "guaranteed," "conservative," and "seeking stability." For example, Wu Tian (a pseudonym), a post-90s from Shanghai, plans to allocate 30% of his monthly funds into fixed deposits, 20% into short-term bond fund investments, 20%-30% for living expenses, and the remaining 20%-30% as flexible funds, considering placing them into cash management type wealth management products.

While seeking "low-volatility and stable" investment products, industry insiders also warn of related risks. For instance, insurance products will comprehensively reduce the preset interest rates, and the trend of "speculating on discontinued sales" is on the rise again. Insurance industry insiders say that investors should fully understand the detailed information of insurance products to avoid blindly "getting on board" due to market speculation. "For example, the sources of returns for insurance products and wealth management products are different, and the preset interest rate is not the same as the annualized compound interest."

Furthermore, the overall yield of wealth management products is under pressure within the year, and future performance may not meet residents' expectations. Data from the third-party statistical agency Puyi Standard shows that as of the end of June, the average one-month annualized yield level of all open-ended fixed-income wealth management products (excluding cash management) in the market was 2.81%, a decrease of 0.44 percentage points month-on-month, marking a decline for three consecutive months and the first time it has fallen below 3% within the year. The average one-month annualized yield levels for cash management products and closed-end fixed-income wealth management products were 1.87% and 3.71%, respectively, with month-on-month decreases of 0.09 and 0.14 percentage points, respectively, and have been in a downward trend since February of this year.

Dong Ximiao, Chief Researcher at China United Network Communications, believes that investors should balance the relationship between risk and return and conduct comprehensive asset allocation. If investors pursue stable returns, they can appropriately allocate cash management type wealth management products, money market funds, and government bonds in addition to deposits.