(Yicai) Feb. 10 -- Chinese banks are ramping up efforts to compete for deposits ahead of the Spring Festival, with small and medium-sized lenders raising interest rates on select products while large banks rely on incentives rather than direct rate hikes, Yicai found.

The competition reflects concerns that a wave of high-interest fixed deposits maturing in 2026 could flow elsewhere, although most industry insiders believe these funds will largely remain in the banking system or move into low-risk assets such as wealth management products, money market funds, and insurance rather than the stock market.

More than 10 small and medium-sized banks have raised deposit interest rates on a phased basis this year, according to incomplete Yicai statistics. The increases mainly target products with higher minimum deposit thresholds and maturities of one to three years and are concentrated among rural commercial banks and village banks, with some offering rates close to 2 percent.

Hunan Xinhuang Rural Commercial Bank, for example, raised the interest rate on three-year fixed deposits of CNY30,000 (USD4,330) and above to 1.75 percent, while lifting rates on one-year and three-year certificates of deposit to 1.4 percent and 1.8 percent, respectively.

Large banks turn to incentives

Unlike smaller lenders, large banks have generally avoided raising deposit rates directly, instead stepping up promotional efforts to attract and retain customers through rewards such as points and cashback incentives.

A client manager at a major state-owned bank in Shenzhen said customers can receive cashback rewards via WeChat once their monthly average daily financial assets reach certain targets. For example, a deposit increase of CNY50,000 to CNY100,000 (USD7,223 to USD14,433) earns a CNY40 (USD6) reward, rising progressively to as much as CNY5,000 for deposit increases exceeding CNY6 million (USD865,976).

A client manager at another state-owned bank branch in Jiangxi province said customers making one-year or longer-term fixed deposits can earn points redeemable for gifts. A cashback reward allows a prescribed amount to be deducted directly from the payment. For instance, depositing more than CNY100,000 with a CNY40 cashback means the customer effectively pays CNY99,960.

Despite recent strength in the stock market, most industry insiders and institutions believe maturing high-interest fixed deposits will mainly remain in the banking system or flow into low-risk, deposit-like assets such as wealth management products and money market funds.

Residents’ income expectations remain constrained, and preserving and increasing the value of savings is still the core priority for most depositors, said Zhong Linnan, a macro analyst at GF Securities. As a result, even with relatively low interest rates, a stable number of residents are expected to continue rolling over fixed deposits, invest in insurance, or repay loans early when deposits mature.

The main destination of any “deposit migration” will be low-risk, deposit-like assets, said Song Xuetao, chief economist at Sinolink Securities. Wealth management products and money market funds are likely to benefit most due to their high liquidity, while insurance, though seeing steady investment inflows, offers less flexibility and has historically been less correlated with deposits. Data show that medium- and low-risk wealth management products remain the mainstream and continue to gain share.

Editor: Emmi Laine