Home
Articles
Chinese Banks Hit by Consumer Shift from Savings Accounts Into CDs

Chinese Banks Hit by Consumer Shift from Savings Accounts Into CDs

Author: Sam Cass on July 8, 2008

Chinese consumers have been socking away money in time deposits (what we call CDs) for the last year and while you would think banks might like it, they don't. Banks worldwide suffer when consumers shift their money from low interest savings to higher interest savings and time deposits.

Bloomberg has an interesting article which illuminates something about the banking world, banks like it when you keep your money in low yield checking accounts. In China, consumers have begun to pull their money out of the stock market and the low yield checking and money market holding accounts and are putting cash into higher yield demand deposit accounts (known as CDs in the United States).

The article states:

"Chinese lenders offer 3.33 percent annual interest on three- month time deposits, compared with 0.72 percent for demand deposits, which can be drawn upon at any time. Deposit rates are set by the central bank."

That's a 2.61 percent different and that hurts the bottom line of banks because it's extra cash they have to pay out.