Exchange rate risk strikes unexpectedly; deposits in Hong Kong cool down

Ask AI · How can exchange-rate risk turn high-yield term deposits into a false proposition?

An Economic Observer reporter Yang Jingxin reports from Beijing

A year ago, advertisements for high-interest deposits in Hong Kong were constantly popping up everywhere. Rates of 5%—7% attracted a large number of investors from the mainland to open accounts in Hong Kong. Some people even bragged online that “just making a trip can earn tens of thousands of yuan more in interest.” Now, most of the investors involved have stopped speaking up.

According to a reporter from China Business News, compared with deposits in Hong Kong dollars, mainland bank deposits do indeed have a significantly different yield. Driven by promotional activities from some banks in Hong Kong, places such as Shenzhen and Zhuhai once saw a surge of deposits in Hong Kong. However, over the past year or so, the Hong Kong dollar has continued to depreciate against the renminbi. The losses caused by exchange-rate fluctuations have exceeded the interest-rate spreads between deposits in the two places, leaving some investors in an awkward situation. What once was a trend of going to Hong Kong to chase high yields has become a thing of the past.

Wrestling with it for a year and losing more than 10k yuan

Shenzhen resident Liu Xing (a pseudonym) was one of the people who went to Hong Kong to make deposits a year ago. “At that time, when I opened a deposit account in Hong Kong, the annualized interest was generally around 4%. The deposit interest rate promoted by some Hong Kong banks was as high as 7%, while the one-year RMB deposit rate at mainland state-owned large banks in the same period was only 1.1%. Even for some smaller banks, the one-year deposit rate was only around 1.5%. With an interest-rate differential of more than double, who wouldn’t be tempted?” Liu told reporters that from March to April 2025, many Shenzhen residents went to Hong Kong to open deposit accounts. Many banks also required queuing for appointments, and the vast majority were attracted by the high interest rates on local deposits.

“After weighing it for a while, I converted a sum of funds into Hong Kong dollars and deposited it in a bank in Hong Kong. At that time, the bank’s rate for new customers was 4.3%, and the interest for one year translated to more than 20k yuan. If I had kept that money in a mainland bank, the interest for one year would only be 6,000—7,000 yuan.” Liu said many of his friends did the same thing as well. As long as the exchange rate didn’t swing significantly, it really looked like there was profit to be made.

However, now that the deposit has matured, Liu found that the actual situation was far less than expected. The extra gain of more than 10k yuan that he had expected didn’t happen. When he calculated it carefully, it was effectively a loss of about 10k yuan. Exchange-rate risk became the main factor behind the investment loss.

As of midday on March 30, the exchange rate of the Hong Kong dollar to the renminbi was 0.8820. Compared with a year earlier at 0.9330, that’s a drop of more than 5%, while bank deposit interest is still below 5%. In other words, if Liu converts the Hong Kong dollars from the matured deposit back into renminbi, the amount he would receive is already less than the principal he put in initially. If you also factor in the interest that the deposit could have earned in a mainland bank, overall it amounts to a loss of around 10k yuan.

It is understood that between the second quarter of 2025 and the first quarter of 2026, the Hong Kong dollar depreciated against the renminbi relatively clearly. On September 30, 2024, the exchange rate of the Hong Kong dollar to the renminbi was 0.903; then it rose steadily, reaching a peak of 0.948 on April 30, 2025. After that, the exchange rate kept falling, and by the end of February 2026 it touched 0.873, the lowest level since April 2023.

The reporter noted that from March to April 2025—when the concept of rushing to make deposits in Hong Kong was hotly promoted—now the Hong Kong dollar has depreciated significantly versus the renminbi by about 5%, already wiping out the interest-rate spread between the two sides.

High-interest deposit is a false proposition

“Mainland residents going to Hong Kong for high-interest deposits face multiple issues such as compliance, exchange-rate risk, and costs. Bank interest rates are not the only factor that determines the outcome.” A relevant person in charge from the Beijing branch of a state-owned large bank said.

The person in charge said ordinary depositors going to Hong Kong to open accounts in itself involves some costs, and the conversion between renminbi and Hong Kong dollars can also produce some losses due to the exchange-rate spread. From a compliance standpoint, cross-border capital flows must comply with relevant regulatory requirements, and exchange-rate fluctuations are an unpredictable variable. “Bank deposits should be a relatively lower-risk way to allocate funds. If you’re doing cross-border shuffling solely to chase the interest-rate differential on deposits, you should make a prudent decision based on your personal situation.”

Zeng Gang, chief expert and director of the Shanghai Finance and Development Laboratory, said that in 2025, chasing high-interest fixed deposits in Hong Kong may involve an investment misconception of “counting only the interest but not the exchange rate.” From 2024 to the first half of 2025, the deposit interest-rate structures between onshore and offshore were significantly different. Term deposit rates at Hong Kong banks generally exceeded 4%, and some reached 7%. In the mainland, the term deposit rates of RMB deposits by Chinese banks were reduced to below 2%, and the interest-rate differential between onshore and offshore widened to about 3 percentage points at one time, attracting a large number of mainland investors to open accounts in Hong Kong. However, investment needs to comprehensively weigh the returns adjusted for risk. Exchange-rate risk is a variable that is easy to overlook in cross-border deposit investments and can be quite damaging.

Zeng Gang believes cross-border deposit investments are a reasonable means of diversifying assets, but exchange-rate risk must be brought into the return calculation framework. The interest-rate spread is the numerator, while currency movements are the denominator that could potentially overturn the whole picture. Ordinary investors lack professional exchange-rate hedging tools and find it difficult to accurately predict the exchange-rate trend, so they should not treat “high interest” as risk-free returns to chase.

Regarding the issue of the interest spread between banks in the two places, Zeng Gang said that the formation of the interest spread on deposits between onshore and offshore, in essence, is an external manifestation of differences in how two sets of monetary policy systems operate, with deeper institutional roots. In terms of the formation mechanism, Hong Kong implements a linked exchange rate system, and monetary policy is highly dependent on and follows the Federal Reserve. During the aggressive rate hikes by the Federal Reserve from 2022 to 2023, Hong Kong raised rates accordingly, driving up Hong Kong-dollar and U.S.-dollar term deposit rates. Meanwhile, with the mainland facing downward pressure on the economy, the central bank cut the LPR and deposit benchmark rates, and term deposit rates in the mainland fell. The policy directions of the two systems moved toward each other, forming the “deposit interest-rate scissors spread.” Looking at future trends, this interest spread will very likely continue to narrow.

For the exchange-rate outlook in 2026, Zeng Gang believes that in 2026 the RMB exchange rate will follow a pattern of mild appreciation and coexistence of two-way volatility. From the fundamentals, the structural factors supporting RMB appreciation are solid. On one hand, China’s current account surplus continues to expand. In 2025, the trade surplus broke to a historical high, and strong exports provide fundamental support for the RMB. On the other hand, the U.S. Dollar Index is weakening under expectations of Federal Reserve rate cuts, and combined with pressures of “de-dollarization,” the attractiveness of RMB assets increases. Mainstream institutions predict that by the end of 2026, the RMB-to-U.S.-dollar exchange rate could rise to around 6.8. For ordinary investors, it is recommended that when making decisions about cross-border foreign-currency investments, they prioritize considering exchange-rate risk rather than focusing only on nominal interest rates. With the RMB expected to appreciate mildly, the cost-effectiveness of betting on Hong Kong-dollar and U.S.-dollar term deposits declines. Investors should not treat chasing interest as the main motivation for cross-border allocation. Instead, they should make rational diversification of assets based on their own needs for foreign exchange usage and their risk tolerance, and avoid one-sided bets.

“Right now, the Hong Kong dollar-to-renminbi exchange-rate price is at a new low, so it isn’t suitable to exchange the Hong Kong dollars you hold. To reduce losses, consider rolling over the matured deposit for another year as a term deposit. On the one hand, the nominal deposit interest rate for the Hong Kong dollar will still be a bit higher. On the other hand, you can also decide based on what the exchange rate will be after one year.” Liu Xing said that his experience with making deposits in Hong Kong a year ago gave him a profound lesson, and this outcome had not been anticipated at all.

(Editor: Zhang Manyou; Review: He Shasha; Proofread: Yan Jingning)