Core Insights - The article discusses the divergence in USD deposit interest rates among different banks in China following the Federal Reserve's interest rate cut, highlighting the confusion among depositors regarding their choices [1][5][6]. Interest Rate Differentiation - Following the Federal Reserve's rate cut on September 18, banks in China have shown a significant divergence in USD deposit rates, with state-owned banks offering rates between 2.2% and 2.8%, while smaller and foreign banks maintain rates between 3.5% and 3.8% [1][2]. - The interest rate spread of up to 1.8 percentage points reflects the banks' financial strength and market dynamics during the Fed's easing cycle [1][2]. Demand for USD Funds - As of June 2025, China's banking sector has a USD asset total of $900.8 billion, with a significant USD funding gap of $580.5 billion, particularly affecting smaller banks that rely heavily on domestic deposits [2][3]. - Smaller banks often resort to high-interest rates to attract deposits, as they face tighter loan limits due to increasing demand for cross-border financing from SMEs [2][3]. Policy Transmission Efficiency - There is a notable difference in how banks respond to Fed policy changes, with foreign banks adjusting rates more swiftly compared to state-owned banks, which tend to lag [3][4]. - The customer base also influences banks' interest rate strategies, with state-owned banks focusing on high-net-worth clients who prioritize stability over high returns [3][4]. Future Trends in Interest Rates - Analysts predict that the current high-interest rates for USD deposits may only last until the end of the year, as multiple factors are expected to narrow the interest rate spread [5][6]. - The ongoing Fed rate cuts are anticipated to further decrease USD deposit rates, with projections suggesting a drop to around 3.2% for one-year deposits [6][7]. Investor Strategies - Investors are advised to consider their specific needs rather than solely focusing on interest rates, especially in light of potential currency fluctuations [8][9]. - For those with immediate USD needs, a combination of short and long-term deposits is recommended to maintain liquidity while maximizing returns [8][9]. - Companies with significant USD requirements can hedge against currency risks through forward contracts, ensuring stable exchange rates for future transactions [9][10]. Risks in High-Interest Products - High-interest deposit products from smaller banks may come with strict withdrawal conditions, potentially leading to lower effective yields if funds are accessed prematurely [10]. - Investors are encouraged to verify the financial health and regulatory compliance of smaller banks before committing to high-yield deposit products [10].