The U.S. dollar fixed deposit interest rate of many banks exceeds 5%, and there may be limited room for further upside.

Recently, against the background of the reduction of RMB deposit interest rates, some foreign currency deposit products have attracted the attention of investors. A reporter from China Securities News recently learned from research that the interest rates on U.S. dollar time deposits in some banks are still relatively "strong," with the highest reaching more than 5%.

Industry insiders said that the Federal Reserve is more likely to cut interest rates in 2024, and the room for U.S. dollar deposit interest rates to rise may be limited. Investors need to pay attention to exchange rate risks and exchange costs when purchasing foreign currency deposits.

The interest rate of US dollar fixed deposit products still has advantages

"Our bank's U.S. dollar time deposit products have two terms: 1 month and 1 year. The interest rates range from 4.3% to 5.2% depending on the minimum deposit amount." Ms. Wang, a financial manager of the Nanjing Branch of the Bank of Jiangsu, told reporters that the bank The interest rates for one-month U.S. dollar time deposits are divided into three levels. The annual interest rate for deposits starting from USD 2,000 is 4.7%, the annual interest rate for deposits starting from USD 10,000 is 4.9%, and the annual interest rate for deposits starting from USD 30,000 is 5.2%; 1 The interest rate of US dollar time deposits with a tenor of ten years is also divided into three levels according to the above-mentioned minimum deposit amount, with annual interest rates of 4.3%, 4.5% and 4.8% respectively.

The reporter's research revealed that in addition to Bank of Jiangsu, there are also many joint-stock banks and city commercial banks, including Bank of Nanjing, Hengfeng Bank, and Hangzhou Bank, whose interest rates on U.S. dollar time deposits are 5% and above.

Ms. Guo, a financial manager of Hengfeng Bank Hangzhou Branch, told reporters that the bank’s U.S. dollar time deposit products have four terms: 3 months, 6 months, 1 year, and 2 years. The minimum deposit amount is divided into 50 US dollars and The interest rate ranges from 3.9% to 5% for deposits starting from US$10,000, of which the interest rate for US dollar time deposits with a one-year term starting from US$10,000 is 5%.

Many bank financial managers said that the interest rates of U.S. dollar time deposit products will be adjusted regularly, and the specific deposit price needs to be based on the quote on the day of purchase. Ms. Wang said, "We will adjust the U.S. dollar deposit interest rate every month. The one-month U.S. dollar deposit interest rate in this period is increased by 20 basis points compared with the previous period. The one-year U.S. dollar deposit interest rate has not changed."

Limited upside potential

Industry insiders believe that due to the continued interest rate hikes by the Federal Reserve in the past two years, U.S. dollar deposit interest rates have risen. However, market expectations for the Federal Reserve to cut interest rates have become increasingly strong recently, and experts believe that there is limited room for U.S. dollar deposit interest rates to continue to rise.

Liu Yinping, an analyst at Rong360 Digital Technology Research Institute, said that the foreign currency deposit interest rate is related to the interest rate level of the country or region, and has little correlation with the RMB deposit interest rate. In the past two years, the Federal Reserve has continued to raise interest rates, and the U.S. dollar deposit interest rate has risen sharply. The bank's U.S. dollar time deposit interest rate can reach 5% and above. Guo Yiming, investment advisory director of Jufeng Investment Consulting, believes that banks' use of high interest rates to attract deposits during the "good start" period may be one of the reasons for the higher interest rates on some U.S. dollar deposits.

Ming Ming, chief economist of CITIC Securities, said that based on the current economic situation in the United States, the U.S. economy is more likely to gradually cool down this year, and a precautionary interest rate cut is more likely.

Liu Yinping said that the trend of U.S. dollar deposit interest rates mainly depends on the interest rate policy of the Federal Reserve. If the Federal Reserve cuts interest rates, the U.S. dollar deposit interest rates will be lowered accordingly.

Pay attention to exchange rate risks

Many financial managers and industry insiders said that although U.S. dollar time deposit interest rates are relatively attractive compared with RMB time deposit interest rates, investors also need to consider exchange rate risks and exchange costs before making decisions.

Guo Yiming said that the biggest risk in purchasing U.S. dollar time deposits is the exchange rate. If the U.S. dollar depreciates against the RMB, the interest on U.S. dollar deposits may be greatly reduced, and investors need to pay close attention to the future exchange rate trend.

The aforementioned financial manager Ms. Guo said that investors need to consider the cost of currency exchange. It may not be cost-effective to specifically exchange currency to purchase products. “Purchasing US dollar deposit products requires currency exchange, converting RMB into US dollars. However, there is uncertainty in the subsequent trend of the US dollar exchange rate. If the US dollar depreciates after the product matures, the actual deposit interest received by investors after converting into RMB may not be high. Or you may face the risk of loss," Ms. Guo said.

In addition, some financial managers recommend investors to diversify their allocations. Ms. Wang, the aforementioned financial manager, suggested that investors can appropriately allocate U.S. dollar deposit products based on their actual circumstances and needs. They can also use insurance, large-denomination certificates of deposit and other products to lock in returns in advance against the background of falling interest rates.