Deposit Rate "1%" Era Fully Arrives: Small and Medium-Sized Banks Cut Rates Intensively, Three-Year Fixed Deposits Fall Below 2%

China Times Reporter Lu Mengxue Beijing Report

“Last Monday, a large-term deposit certificate matured. The three-year deposit made in 2023 at 3.25% earned nearly 30,000 yuan in interest on 300,000 yuan. If renewed, the bank’s three-year rate has dropped to only 1.55%, cutting the interest in half.” Recently, a citizen told reporters with emotion that the sharp decline in bank deposit rates in recent years has been unexpected. “Now, it’s becoming increasingly difficult to find rates above 2%.”

Behind this sentiment is a profound change happening in the banking deposit market. As the peak of the “Opening Red” deposit-raising campaign gradually subsides, since March, dozens of city commercial banks, rural commercial banks, and village banks such as Xinjiang Bank, Shanghai Huarui Bank, and Yunnan Yuanjiang North Bank have announced significant reductions in fixed deposit rates.

After the adjustments, the interest rates for 2-year, 3-year, and 5-year fixed deposits at small and medium-sized banks generally fell below 2%, officially entering the “single-digit” era, with some short-term products even dropping into the “zero” range.

Focus on Medium and Long-Term Deposit Rate Cuts

This round of deposit rate adjustments is not limited to a small area but covers banks across multiple regions including Hubei, Yunnan, Xinjiang, and Jiangsu.

Since March alone, many small and medium-sized banks such as Pukou Jingfa Village Bank in Nanjing, Songjiang Fuming Village Bank in Shanghai, Huarui Bank in Shanghai, and Youyi Rural Commercial Bank in Heilongjiang have issued notices to adjust the rates for various deposit products including demand and fixed deposits.

In terms of the magnitude of the adjustments, medium and long-term deposits have become the “key area” of this rate cut, with reductions mostly in the range of 5 to 30 basis points.

For example, Yunnan Yuanjiang North Bank has lowered the five-year fixed deposit rate to 1.9%, down from 2.2%, a decrease of 30 basis points; Pukou Jingfa Village Bank has reduced the rates for three-year and five-year fixed deposits to 1.88%, down from 2.2%, a drop of 32 basis points; Hubei Three Gorges Rural Commercial Bank has adjusted the annual interest rates for its “Fuman Ying” one-year, two-year, and three-year fixed deposits to 1.15%, 1.25%, and 1.55%, respectively, down 25, 25, and 30 basis points from previous rates. Huarui Bank in Shanghai also lowered the rates for two-year, three-year, and five-year fixed deposits to 1.95%, 2.00%, and 1.95%, each down 5 basis points, with the two-year and five-year rates officially falling below 2%.

Notably, after the adjustments, the phenomenon of “inverted” deposit terms and yields has become more common. For example, Youyi Rural Commercial Bank in Heilongjiang has a three-year fixed deposit rate of 1.75%, while the five-year rate is only 1.6%. Similarly, Huarui Bank in Shanghai has a three-year deposit rate of 2.00% higher than the five-year rate of 1.95%.

However, despite the continuous rate cuts, compared to the 0.05% demand deposit rate and 1.25% and 1.3% rates for 3- and 5-year fixed deposits at large state-owned and joint-stock banks, most small and medium-sized banks still offer rates 20 to 50 basis points higher for the same terms, maintaining a relative “price advantage.”

Liability Cost Pressure Forcing Rate Cuts

In fact, to respond to the “Opening Red” campaign, some small and medium-sized banks had announced “temporary rate hikes” for deposits at the end of 2025, raising deposit rates temporarily.

At that time, Miyang Rural Commercial Bank increased the rates for one-year, two-year, and three-year fixed deposits to 1.41%, 1.43%, and 1.73% from January 1 to March 31; Shangnan Rural Commercial Bank announced that from January 5 to March 31, its three-month, one-year, and two-year deposit rates were increased by 15 basis points; Henan Sui County Deshang Village Bank, Hubei Macheng Rural Commercial Bank, Jiangsu Baoying Rural Commercial Bank, and others also raised some deposit rates, with increases reaching up to 20 basis points.

However, as the first quarter’s deposit-raising peak ended, banks quickly adjusted their strategies, rolling back the previously increased rates and further lowering them. This “rise then fall” approach reflects banks’ helplessness under the pressure of liability costs.

According to data from the National Financial Regulatory Administration, by the end of Q4 2025, the net interest margin of commercial banks was 1.42%, still at a historic low. City and rural commercial banks had net interest margins of 1.37% and 1.60%, respectively, showing some stabilization but still significant operational pressure. With the Loan Prime Rate (LPR) continuing to decline, asset yields are being squeezed, and if liability costs remain high, banks’ sustainability will face serious challenges.

Yang Haiping, a special researcher at the Beijing Wealth Management Industry Association, told China Times that the recent rate cuts by some small and medium-sized banks mainly aim to reduce interest expenses. This aligns with current macroeconomic policies, especially the repeatedly emphasized continuation of loose monetary policy at the People’s Bank of China working meetings. Additionally, market expectations of a reserve requirement ratio (RRR) cut have influenced these decisions, as lowering deposit rates helps reduce interest expenses and maintain net interest margins.

Dong Ximiao, Chief Researcher at Zhaolian Finance, believes that these rate cuts are also a follow-up to the nationwide rate reductions by large commercial banks. Given that small and medium-sized banks have more room to increase rates and their deposit-raising behaviors still need regulation, their liability costs remain higher than those of state-owned banks, leaving room for further reductions.

Industry Outlook

Overall, securities firms and institutions generally hold a cautious optimistic view on the net interest margin trend into 2026. Citic Securities predicts that the decline in bank net interest margins will narrow to about 4 basis points in 2026, marking the first single-digit annual decline since 2022. Kaiyuan Securities also expects a slight narrowing of about 4 basis points this year, with most pressure in the first half. Zheshang Securities believes that bank interest margins may first decline then stabilize this year, with a significantly smaller decrease compared to previous years.

Notably, according to estimates by CICC, by 2026, the scale of residents’ fixed deposits maturing will be about 75 trillion yuan, with about 67 trillion yuan of deposits maturing for one year or more—an increase of 10 trillion yuan from the previous year, a 17% rise. As the interest rates for medium- and long-term deposits in the deposit market generally decline, the flow of these maturing deposits will be a key variable for banks’ liabilities this year.