USD Deposit Interest Rates Are Rising And Currency Risks Cannot Be Underestimated.

USD Deposit Interest Rates Are Rising And Currency Risks Cannot Be Underestimated.

As the Federal Reserve continues to raise interest rates, bank interest rates on US dollar deposits continue to soar. During this period, the maximum one-year US dollar fixed deposit interest rate can reach 5.2%, which is currently around 4.7%. There has been a slight correction, and you can purchase for 2000 US dollars, "said a financial manager at Agricultural Bank of China in Beijing.

However, under the temptation of huge returns, the risks cannot be underestimated. Multiple bank wealth managers have stated that "although the current US dollar fixed deposit interest rate is significantly higher than the RMB fixed deposit interest rate, considering factors such as exchange cost and exchange rate fluctuation risk, it is not recommended for investors to blindly exchange and purchase products without the US dollar." Industry experts interviewed also stated that although the US dollar deposit interest rate has risen, there is limited follow-up space. At the same time, investors also need to bear the potential risk of exchange rate fluctuations.

Higher US dollar deposit interest rates

It is understood that the annualized interest rate for US dollar fixed deposits in most banks is generally above 4%. Among them, the annualized interest rate for one-year US dollar fixed deposits has reached over 5%. According to the financial manager of a branch of Bank of China in Beijing, if a one-time deposit of 50000 US dollars is made, the annualized interest rate for one-year US dollar fixed-term deposits is 4.9% to 5.1%. Compared with the higher threshold of state-owned banks, some urban commercial banks have lower minimum deposit amounts and higher interest rates for US dollar fixed deposits, with the highest annualized interest rate even reaching 5.5%. Taking Jiangsu Bank as an example, the annualized interest rate for one-year deposits starting from $10000 is as high as 5.5%, while the annualized interest rate for one-year deposits starting from $2000 is 5.3%.

Interest rate rise or approaching end

The one-year US dollar deposit interest rate has skyrocketed from less than 1.0% in 2021 to a recent 5.0% or higher. In just one year, the US dollar deposit interest rate has increased by more than five times. This is mainly due to the sharp turn of the Federal Reserve policy, aggressive interest rate hikes, and the impact of the rapid contraction of US dollar liquidity worldwide, which has driven the US dollar deposit interest rate to rise significantly. Will the US dollar deposit interest rate continue to rise? Many industry insiders believe that the Federal Reserve still has a rate hike plan for the second quarter of 2023, but the rate hike process may be nearing its end, so there is limited room for further increases in US dollar deposit rates. Yang Haiping, a researcher at the Securities and Futures Research Institute of Central University of Finance and Economics and the General Manager of the Research and Development Department of Inner Mongolia Bank, said that with the increasing pressure of the US economic recession and the rise of banking risks, the Federal Reserve's interest rate hike is approaching its end. Therefore, the motivation for domestic banks to continue to increase their US dollar deposit rates in the future has weakened.

Zhou Maohua, a macro researcher at the Financial Markets Department of Everbright Bank, predicts that the Federal Reserve will continue to raise interest rates one to two times, each by 25 basis points, with a peak of 5.25% to 5.5%. From the current trajectory of slowing inflation in the United States, the policy interest rate of around 5.5% has entered a restrictive interest rate level, and the Federal Reserve intends to avoid causing more serious harm to the economy due to excessive tightening.

Be vigilant about the risk of fluctuations in the US dollar exchange rate

It is worth noting that compared to the RMB fixed deposit interest rate, although the US dollar fixed deposit interest rate of banks is much higher, bank wealth managers do not recommend specialized exchange for this purpose. Relatively speaking, US dollar deposits are more suitable for investors who already have US dollars in their hands. There are also some risk factors hidden behind the high interest rates of US dollar deposits. Allocating foreign exchange assets not only focuses on interest rates, but also on exchange rate changes. Otherwise, it is likely to gain interest rate differentials and lose exchange rate differentials, "said the industry expert interviewed above. Jin Tian, a senior researcher at the Digital Economy Research Institute of Zhongnan University of Economics and Law, suggests that it is necessary to comprehensively consider exchange rate fluctuations and exchange costs. If the US dollar exchange rate falls in the future, investors' interest income on US dollar deposits may be eroded by exchange rate losses and exchange fees.

Li Yelin, a postdoctoral fellow at the Bank of China Research Institute, stated that exchange rate fluctuations remain one of the main risks. Due to the uncertain economic growth prospects of the United States and the direction of the Federal Reserve's monetary policy, uncertainty remains high, and high attention needs to be paid to exchange rate fluctuation risks. At the same time, investors should pay attention to changes in the macroeconomic and financial operating situation and various risk events, and fully consider the resulting changes in exchange costs. We should not blindly pursue high interest rates, but choose products issued by legitimate banking institutions that meet our investment maturity preferences to avoid financial fraud traps and blind investment.