Banks in China are displaying a rare divergence in deposit pricing, with some institutions raising rates to attract funds while others slash them to control costs.

In August, some county-level rural commercial banks and village banks have increased deposit rates to retain local depositors. For example, Hubei Jianli Rural Commercial Bank raised rates on its "Fumanying" and "Fumancun" products for one-year, two-year, and three-year terms by 15 basis points on August 8. Meanwhile, Wuhua Huimin Village Bank in Guangdong increased two-year and three-year fixed deposit rates by 11 and 33 basis points, respectively, to 1.28% and 1.58% on August 5.

In contrast, many small and medium-sized banks continue to lower long-term fixed deposit rates, with some even experiencing inverted rates where five-year deposits yield less than three-year ones. For instance, Henan Xin'an Rongxing Village Bank cut one-year rates by 5 basis points and two-year rates by 25 basis points on August 10. Henan Yiyang Xingfu Village Bank adjusted rates on August 1, setting three-year and five-year rates at 1.50% and 1.35%, respectively, creating an inversion.

Adding to the complexity, the four major state-owned banks—Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China, and Bank of China—have reintroduced five-year certificates of deposit (CDs) after a long absence. These products offer annualized rates up to 1.60%, with a minimum deposit of 200,000 yuan, and have seen strong demand. For example, ICBC's 1.60% five-year CD has already sold out, while the 1.55% tier still has over 10 million yuan available.

Why the divergence?

The banking industry is grappling with a record low net interest margin of 1.40% in the first quarter of 2026, according to the National Financial Regulatory Administration. State-owned banks, joint-stock banks, private banks, and rural commercial banks have all seen their margins decline, while city commercial banks saw a slight uptick to 1.38%.

Analysts attribute the differing strategies to each bank's liability base, asset allocation pressure, and risk tolerance. Wang Pengbo, chief analyst at Botong Consulting, notes that state-owned banks' revival of five-year CDs is a temporary measure to manage liabilities, addressing the maturity of existing deposits and the need for long-term funds to match assets. However, this does not signal a reversal in the broader trend of low deposit rates, as these banks carefully control issuance to avoid raising overall costs.

Different paths for different banks

State-owned banks, with extensive national networks and brand trust, can accumulate low-cost demand deposits, making their liability base stable. Their five-year CDs are more about serving high-net-worth clients while managing scale. In contrast, county-level rural banks, which focus on local small and micro enterprises and agriculture, need stable long-term funds to match asset durations. They may slightly raise rates to retain local deposits, facing pressure from high customer sensitivity to rates and cross-regional fund attraction.

For small and medium-sized banks, lowering five-year rates or creating inversions aims to steer depositors toward shorter terms, reducing long-term fixed interest costs and easing liquidity management pressure. However, this approach could weaken support for long-term credit allocation.

Experts suggest that deposit rates will not see a uniform, across-the-board decline. Instead, stratified pricing and differentiated strategies will become the norm in a market-oriented interest rate environment. State-owned banks will focus on fine-tuning rate structures, county institutions will adjust based on local supply and demand, and village banks will continue to reduce long-term costs. While some banks may offer high-rate products to address funding gaps, these will likely be limited in scale and scope.