Where has the "idle money" of the common people gone?, Lowered interest rates for investment | interest rates | on hand

After the bank lowered the deposit interest rate, on June 15th, the medium-term lending convenience rate was lowered by 10 basis points, and the eagerly awaited interest rate cut finally came to fruition. The LPR quotation, which will be announced on the 20th of this month, is likely to be lowered accordingly. The central bank's move is aimed at further driving down the actual loan interest rates of enterprises and residents, stimulating credit demand, and driving investment and consumption.

From the perspective of resident investment, where will the idle money in hand flow when bank deposits become increasingly uneconomical?

Breakeven Insurance and Gold Becoming Popular Again

"Recently, there have been more people consulting about insurance products," a life insurance salesperson told a reporter from First Financial.

Recently, regulatory requirements have required life insurance companies to lower the pricing interest rate of newly developed products from 3.5% to 3.0%, which will affect the prices and returns of insurance products. According to the reporter's understanding, currently, 3.5% of the products of many companies have been taken down or suspended from sale. Perhaps by the end of June at the latest, old products will be completely withdrawn. Therefore, taking advantage of this gear, many people want to catch 3.5% of the last bus.

Banks are also seizing this window of opportunity and making every effort to shift their focus on promoting products from past wealth management products to insurance products.

"Wealth management products do not guarantee principal, and we would also recommend customers to purchase more stable insurance," a wealth management manager at a branch of China Construction Bank told reporters. Nowadays, there are indeed more customers who buy insurance than those who buy wealth management. The reporter found that the bank's customer managers were all working hard to call out such products, whether it was the bank's outlet hall, or various social software such as the circle of friends, Little Red Book, Tiktok, etc.

But is there really such a great need to rush to catch the "3.5%" last bus?

In fact, the original intention of lowering the life insurance pricing interest rate is to cooperate with the reduction of bank deposit interest. A few days ago, major banks and joint-stock banks in various countries successively announced that deposit interest rates are bidding farewell to the 3.0% era, which means that the cost of insurance products on the liability side has increased. In order to ensure corresponding investment returns, insurance companies need to lower the predetermined interest rate to lower the cost of liabilities and maintain a balance between the two ends of insurance product balance.

However, in the eyes of experts, this change does not have a significant impact on customers pursuing long-term stable returns.

Hu Xiang, an analyst at Dongwu Securities, believes that the external sales environment for savings insurance products is continuously and significantly improving. Even if banks do not engage in speculation and suspension of sales, the performance of savings business is already good.

Wang Fangchao, a non bank financial analyst at Dongguan Securities, also stated that the "reduction in predetermined interest rates" is beneficial for the industry to reduce its long-term debt costs. The "protection" attribute of insurance still has sustained product competitiveness, and the demand for related products is still strong. The demand for savings and protection products is expected to continue to grow.

"Everyone should maintain rational thinking and carefully study whether the product matches their expectations. There is no need to rush into the car just because the 3.5% interest rate is about to end due to nervousness," said a macro strategy researcher at Yongying Fund to a reporter from First Financial.

In addition, gold has once again become a coveted commodity in the eyes of investors. Several bank staff members told reporters that as the price of gold rises, there have been more people consulting and purchasing gold during this period.

Early repayment of loans to continue "reducing burden"

In addition to using money to "buy and buy", in the context of interest rate cuts, residents are more eager to reduce household leverage and start planning to repay the money.

"I don't know how to invest, so it's better to repay the mortgage first to reduce the burden. Investing on my own may not have paid the bank's interest as much as before," Ms. Zhao, who came to handle early repayment of the mortgage at a branch of a joint-stock bank, told a reporter from First Financial News.

In fact, this trend has been ongoing for several months, with a surge in popularity in the past month. A staff member from the personal loan business department of a state-owned large bank in Wenzhou told reporters that there have been approximately 150 million repayments in the past month, with a total of around 150 transactions. Previously, there were only a few tens of millions of transactions in a month. "There are two main types of customers who come to repay, one is those who want to sell a house, and the other is those who want to transfer to a business loan," he said.

Although the 5-year LPR linked to mortgage rates has dropped several times in the past year, some existing mortgage rates are still significantly higher than the average mortgage rate of about 4.25%. Taking Wenzhou as an example, in October 2022, the interest rate for the first home in Wenzhou entered the "3" era, with the interest rate lowered from 4.1% to 3.8%, and the interest rate for second home loans remained at 4.9%.

Analysts have different opinions on the impact of early repayment of housing loans by residents on banks and the real estate market.

Most views believe that early repayment of loans is beneficial for enhancing market information and stimulating credit demand. Qi Dong, an analyst in the real estate industry at Open Source Securities, said that the accumulated demand for buying houses in 2022 has come to a halt after being fully released at the beginning of the year. Coupled with the need for further consolidation of confidence in future economic growth and income among residents, especially young homebuyers, the overall real estate market has significantly cooled down. If the LPR adjustment is carried out in June, it is expected to boost residents' purchasing power and confidence, and improve expectations for the future real estate market and policy direction.

Zhang Xu, Chief Analyst of Everbright Securities, also stated that the future trend of credit growth is clear, and the next stage of credit should maintain a rational and optimistic attitude.

The latest credit data released by the central bank shows that in May 2023, the household sector added RMB 168.4 billion in medium and long-term loans; In April, this data decreased by 115.6 billion yuan.

However, there are also different perspectives. An investment manager from Ping An Real Estate told reporters that in the case where the market investment income is lower than the mortgage interest income, the amount of money repaid in advance will become a cost for the bank, increasing the burden on the bank.

With the successive reductions in reverse repurchase rates, SLF, and MLF rates, the market expects that an asymmetric reduction in LPR quotations next week is a high probability event. It is expected that the one-year LPR quotation will be reduced by 5 basis points, and the five-year and above LPR quotation will be reduced by 15 basis points. The willingness of residents to repay loans in advance may continue.