Five-year fixed deposits generally enter the 1% range, and the interest rate inversion has spread to small and medium-sized banks.

Source: 21st Century Business Herald Author: Guo Congcong

Since the beginning of 2026, medium and small banks’ deposit interest rates have traced a reversal curve that first rose and then fell.

Reporters with 21st Century Business Herald noted that during the early-year “Qingmenhong” period, in order to capture market share, many medium and small banks temporarily raised their time deposit rates. But since March, multiple medium and small bank institutions led mainly by rural commercial banks and village-and-town banks have lowered their time deposit rates one after another. In particular, five-year time deposits have entered the era of “1-something,” and only a small number of institutions such as Panjin Bank have kept their rates above 2% for the same period.

Worth noting is that some banks have shown an interest-rate inversion phenomenon: the five-year fixed-deposit rate is the same as, or even lower than, the three-year rate. For example, Heilongjiang Friendship Rural Commercial Bank’s five-year time-deposit rate is 1.6%, which is lower than its three-year rate of 1.75%.

In this round of deposit rate cuts, however, the interest rates on large-denomination certificates of deposit (CDs) have displayed stronger “downside resistance.” The rates are basically flat with the start of the year, and product tenors show a clear trend toward shorter terms. For one-year products, the rates are generally between 1.4% and 1.45%; for three-year products, rates cluster around 1.8%. The only change is that issuance supply has eased somewhat compared with the beginning of the year.

With this interest-rate reversal adjustment, has it gone beyond market expectations? Can large CDs “fly solo” during the rate-cut wave? And how will the “inversion” of rates reshape depositors’ behavior and banks’ liability structures? The reporter will, by combining the latest data and expert views, explain the reasons for medium and small banks’ rate cuts in this round and their expected future trend.

Medium and small bank rates rise first, then fall

Since the beginning of 2026, medium and small banks have traced a reversal curve that first rose and then fell in terms of deposit interest rate trends.

During the early-year “Qingmenhong” period, to secure market share, many medium and small banks temporarily raised their time deposit rates. Several local banks, including Shanxi Lin County Rural Commercial Bank and Zhejiang Jiashan Rural Commercial Bank, made modest increases of 10 to 20 basis points (i.e., 0.1% to 0.2%) to fixed-deposit rates for certain tenors. It is worth noting that most of these rate hikes come with time limits. For instance, Zhejiang Jiashan Rural Commercial Bank clearly states that the issuance period for this round is from January 5, 2026 to March 31, 2026.

At that time, state-owned big banks and joint-stock banks were shrinking their long-term deposit growth. Medium and small banks, by leveraging this differentiated strategy, gained more initiative in the early-year competition for deposit gathering.

But after entering March, multiple medium and small bank institutions, mainly rural commercial banks and village-and-town banks, began to lower deposit rates one after another. For example, Yunnan Shiping Beiyin Village-and-Town Bank announced that it would comprehensively lower rates for three months to three years. Among them, the three-month rate was cut from 1.10% to 0.80%, the six-month rate from 1.30% to 1.10%, the one-year rate from 1.60% to 1.55%, the two-year rate from 1.90% to 1.70%, and the three-year rate from 2.30% to 2.10%, with reductions ranging from 5 to 30 basis points.

Chiping Hulv Rural Commercial & Village-and-Town Bank, Liaoning Zhenxing Bank, and other institutions also followed suit. In this round of adjustments, more banks’ five-year deposit rates fell below 2%, officially joining the “1-something” bracket. For example, Nanjing Pukou Jingfa Village-and-Town Bank announced that effective March 2, the unit and personal fixed deposit rates for three-year and five-year terms were lowered from 2.2% to 1.88%.

Based on multi-party statistics compiled by reporters from 21st Century Business Herald, the five-year fixed-deposit rate has generally already entered the “1-something” era. Only a few banks, such as Panjin Bank and Yunnan Shiping Beiyin Village-and-Town Bank, continue to keep five-year rates above 2%. Among them, Panjin Bank’s five-year fixed-deposit rate is 2.05%, while Yunnan Shiping Beiyin Village-and-Town Bank’s five-year fixed deposit rate is 2.1%.

Regarding this round of rate cuts by medium and small banks, Lin Yingqi, Director of the Banking Research Department at China International Capital Corporation, and a banking analyst, analyzed that the current concentrated and clearly paced rate cuts by rural commercial banks and village-and-town banks show a clear rhythm and explicit力度. The drop in long-tenor products is even more pronounced: five-year rates have generally entered the “1” range, which is a market-based adjustment under the pressure of managing funding costs and compressing net interest margins.

Lin Yingqi said that the market is not feeling surprised about this round of rate adjustments. “‘Qingmenhong’—the phase of periodic increases early in the year—was a short-term deposit-gathering strategy. The rapid pullback after the holiday period is a return to normality and an active move to reduce costs. It matches both seasonal features and market expectations.”

The “rate inversion” phenomenon will persist in the near term

In this round of deposit rate adjustments, one especially notable phenomenon is that several banks’ five-year deposit rates are the same as the three-year rate, or even lower than the three-year rate, resulting in a “rate inversion” phenomenon.

Taking Heilongjiang Friendship Rural Commercial Bank as an example, after the adjustment the bank’s three-year fixed deposit rate is 1.75%, while its five-year rate is only 1.6%. After adjustments by Shanghai Huarui Bank, the three-year rate is 2.00%, but the five-year rate falls to 1.95%.

In fact, before this round of interest-rate adjustments by medium and small banks, state-owned big banks had already shown similar situations. Currently, China Construction Bank’s maximum three-year fixed-deposit rate is 1.55%, while its five-year rate is only 1.30%; Citibank’s three-year and five-year rates are both 1.30%. Now, as the “inversion” phenomenon spreads from big banks to medium and small banks, it has drawn market attention: does this mean that rate “inversion” is becoming a norm?

In response, Lin Yingqi believes this indicates that rate “inversion” is moving from isolated cases to a phase of normalcy. “The core logic is that banks anticipate a decline in interest rates and are unwilling to lock in long-term liabilities at higher cost. They therefore actively compress high-interest long-term deposit products.”

In fact, since 2025—against the backdrop of multiple LPR cuts and ongoing declines in asset-side yield—pressure on banks’ net interest margins has intensified. Data from the National Financial Regulatory Administration show that at the end of 2025 China’s commercial banks’ net interest margin was 1.42%. Among them, net interest margin for large commercial banks was 1.30%, joint-stock commercial banks 1.56%, city commercial banks 1.37%, and rural commercial banks 1.60%.

To ease this pressure, banks must start from the liability side—actively compressing long-term deposits with high costs, and instead guiding customers to choose products with shorter tenors and lower costs.

Lin Yingqi further explained that in the future, this structural change will have additional effects on both depositors and banks. For depositors, the five-year rate loses its appeal, so they will be more inclined to choose products within three years and reduce allocations with ultra-long horizons. For banks, it helps to lower funding costs, optimize the tenor structure, and ease margin pressure. He said, “This reflects refined liability management, and we expect the ‘inversion’ phenomenon in deposit and loan rates to continue in the short term.”

Large-denomination CDs show strong “downside resistance”

In this round of deposit rate cut wave, some products represented by large-denomination CDs have shown strong “downside resistance.”

Rural commercial banks are undoubtedly the main issuers of large-denomination CDs. Based on a comparison and observation by reporters from 21st Century Business Herald, the March large-denomination CD rates are basically the same as at the beginning of the year. In terms of issuance tenors, the trend is even more toward shorter terms—tenors are mostly concentrated in one-year and three-year terms, and five-year large-denomination CDs are rare. From the interest-rate level, one-year products generally fall between 1.4% and 1.45%; three-year products cluster around 1.8%, averaging about 20 basis points higher than equivalent products at state-owned big banks.

For example, Huainan Tongshang Rural Commercial Bank’s newly issued one-year and three-year large-denomination CD rates are 1.4% and 1.77%, respectively. Jiangsu Guanyun Rural Commercial Bank’s one-year rate is 1.45%. Hunan Chenxi Rural Commercial Bank’s three-year rate is 1.8%. It is worth noting that a few institutions still maintain rates above 2%. For example, Longshun County Rural Credit Cooperative’s three-year CD rate reaches 2.15%.

From the perspective of issuance pace, the supply of large-denomination CDs has slowed compared with the beginning of the year. Data from the China Money Network show that in January 2026 there were 282 large-denomination CD issuances; this fell to 214 in February, and as of March so far there have been 87. Although issuance numbers have narrowed, medium and small banks represented by rural commercial banks remain the absolute main issuers.

Why can large-denomination CDs from medium and small banks “hold up” relatively well against the pressure from rate cuts? Lin Yingqi believes there are three main reasons: First, large-denomination CDs have a high minimum deposit threshold (usually starting from 200,000 yuan), customers are more stable, and they are considered the bank’s core high-quality liabilities—so banks are willing to retain a moderate interest-rate advantage to stabilize large funds. Second, large-denomination CDs are often issued in limited quantities with structured tenors, giving banks flexibility to adjust scale and costs without needing to follow ordinary deposits in making large, synchronized cuts. Third, large-denomination CDs have liquidity advantages such as transferability, making them more acceptable to customers and reducing the need to rely entirely on high-rate competition.

Lin Yingqi concluded: “Overall, this reflects a bank’s differentiated liability strategy: lowering costs with ordinary deposits, stabilizing core funding with large-denomination CDs, and balancing cost control with liability stability.”

However, it is worth noting that the interest-rate spread between large-denomination CDs and ordinary fixed deposits is narrowing. Taking Nanjing Bank as an example, its one-year large-denomination CD rate for deposits starting at 200,000 yuan is 1.45%, only slightly higher than its one-year personal fixed deposit rate for deposits starting at 10,000 yuan of 1.35% for the same period. Its three-year large-denomination CD rate is 1.8%, exactly the same as the three-year personal fixed deposit rate for the same period. This means that for some customers, the premium effect of large-denomination CDs has become very weak.

(Editor: Wenjing)

Key words:

                                                            Deposits
                                                            Interest rates