Mladen ANTONOV

Several Hong Kong banks have recently launched limited-time time deposits offering annualised rates in the teens and even above 20%. But for mainland investors holding Renminbi who must first convert their funds before making a deposit, the interest earned over seven days may not be enough to cover the currency conversion spread.

Eye-catching rates, but plenty of conditions

According to market data, the main offers currently include:

  • ZA Bank: annualised rates of about 20% to 22% on seven-day time deposits. Reports said the annualised rate for seven-day US dollar deposits was 17%, while deposits in other non-US dollar currencies paid 20%. LV2 customers — those with average total assets of at least HK$500,000 over the past 30 days — can receive an additional 2 percentage points.
  • Ping An Digital Bank: new customers who open an account using a referral code can receive an annualised rate of up to 18% on a one-month Hong Kong dollar time deposit for their first HK$100,000.
  • BOCOM Hong Kong: during the promotional period from September 21 to December 31, annualised rates of up to 15% are available on limited-time foreign-currency exchange time deposits.
  • CCB (Asia): new private banking customers can receive annualised rates of up to 7.88% on three-month Hong Kong dollar and Renminbi time deposits, and up to 8.88% on US dollar and other foreign-currency deposits. New funds of between HK$1 million and HK$3 million must be deposited.

The high rates come with short maturities, capped amounts and strict eligibility requirements. For most offers, the key maturity for the top rate is just seven days, and the funds must remain on deposit for a full week. Top rates such as 22% are also tied to higher-tier customer status and are not easily available to ordinary retail customers with smaller deposits. By comparison, standard Hong Kong dollar time deposits currently offer annualised rates of about 3%, while US dollar deposits offer around 3.6% to 4.3%.

Interest versus currency conversion costs

Interest on a seven-day time deposit must be prorated by the number of days. Annualised rates of 17%, 20% and 22% translate into actual seven-day returns of about 0.33%, 0.38% and 0.42%, respectively. On a principal of HK$100,000, a 22% annualised rate would generate about HK$420 in interest over seven days.

Mainland residents seeking to place funds in this type of foreign-currency deposit must first use Renminbi to buy the foreign currency, then sell it back into Renminbi when the deposit matures. They bear the bank's bid-ask spread on both transactions. The original estimate put the retail currency conversion spread at about 1%, with each conversion resulting in a loss of roughly 0.5% to 1%, or about 1% to 2% in total. This is an estimate, and the actual figure depends on the bank and channel used. If the round-trip cost exceeds about 0.4%, the seven-day interest will not cover it.

As a result, investors who convert currencies specifically to take advantage of these products may end up with less principal when converting the funds and interest back into Renminbi. Experts have also warned that compliance requirements for moving funds out of the mainland, as well as the tax treatment of overseas income, require attention.

High-interest promotions are nothing new

These high-interest products are generally promotional tools aimed at attracting new customers and funds. They have limited quotas and often come with conditions such as being a new customer, using a referral code or a HK$100,000 cap on the initial deposit. Similar seven-day high-interest promotions have appeared repeatedly in the past, including CCB (Asia's) 20% offer in 2023 and ZA Bank's 18.1% offer in April 2024.

The US Federal Reserve unanimously approved a 25-basis-point rate increase on September 16, raising the federal funds target range to 3.75% to 4.00%. Competition among banks for deposits may intensify as a result. But such promotions had already appeared before the rate increase — Ping An Digital Bank, for example, launched a 12% to 16% new-customer time deposit at the end of July — so the latest offer should not be attributed solely to this rate hike.

Who should consider these products?

Analysts said the products are more suitable for only two types of people:

  • People who already hold idle foreign currency, such as Hong Kong dollars or US dollars. As they do not need to make an additional currency conversion, the stated interest rate more accurately reflects their return.
  • Professional traders with a clear view of currency movements, who expect the foreign currency to appreciate against the Renminbi over the next seven days by enough to cover the conversion spread.

For most mainland residents holding Renminbi and subject to the annual US$50,000 personal quota for foreign-exchange purchases under the current facilitation scheme, converting currencies specifically to chase these high rates is not worthwhile. Exchange-rate movements over seven days are difficult to predict, and retail investors without hedging tools face even greater risks.