THE battle for Hong Kong bank deposits is stepping up with lenders offering incentives to attract new money as customers rush to lock in rates that are among the highest in more than a decade.

Some banks are paying as much as 5 per cent a year for term deposits and adding perks ranging from air miles to fee waivers to win fresh money ahead of an expected decline in rates later this year. The city’s base rate moves in lockstep with the US Federal Reserve, given the local currency’s peg to the greenback.

“As the interest rate cycle is expected to settle down towards the latter half of 2024, it’s a good time to lock in your funds to enjoy the interest rates while they are available,” said Jayant Bhatia, chief product officer at Mox, a digital bank backed by Standard Chartered.

The high deposit rates are luring investors following four years of declines for Hong Kong’s benchmark Hang Seng stock index, including a 14 per cent plunge in 2023. Total time deposits in Hong Kong stood at HK$9.29 trillion (S$1.6 trillion) in November, a 24 per cent jump from a year ago, according to the latest data from the Hong Kong Monetary Authority.

Cheung, a human resources professional who only wanted her last name used, hopes to enjoy the high rates as long as she can. She has HK$1 million in a six-month deposit with HSBC Holdings paying 4.5 per cent a year. She puts her money into fixed deposits because there’s “no risk”, she said. She might put the money into stocks this year if rates drop.

“We expect rates may soften,” said Sidney Massunaga, head of retail products, wealth and personal banking for Hong Kong at HSBC. “Customers will be looking to put their money elsewhere, maybe into equity or mutual fund investments.”

In the meantime, lenders are dangling promotions. Mox’s customers can earn air miles with Hong Kong carrier Cathay Pacific Airways if they make a time deposit. The lender became the first bank in Hong Kong to offer upfront interest payments on these products.

“There’s instant gratification on term deposits,” said Bhatia. “Everybody is looking for new funds, all the attractive rates are for new funds.”

Another customer taking advantage of the trend is Mark, 54, who has accounts with most traditional lenders in Hong Kong. He moves money from one bank to another every time his term deposit matures, so that it is considered “new funds”. He recently moved cash out of Hong Kong dollars into US dollars to get a higher rate, locking in a six-month deposit for more than 5 per cent.

Some lenders are reluctant to enter a price war. ZA Bank, the largest virtual bank in Hong Kong, is not just competing on price but also on flexibility, said Calvin Ng, alternate chief executive.

The bank is offering a promotional 3.65 per cent annual rate for four-month Hong Kong dollar deposits, which is not the highest in town, with banks such as DBS Group Holdings offering 4.35 per cent for new funds of at least HK$50,000, according to its website. However, customers who take their money out before maturity get a cash rebate, and early withdrawal fees are waived.

While virtual banks have been fighting for market share, traditional lenders still hold the bulk of deposits. The eight digital banks had a combined HK$32.2 billion in deposits by the first half of 2023, or just 0.2 per cent of Hong Kong’s total base, according to Quinlan & Associates.

“It’s very competitive,” said Benjamin Quinlan, CEO of his eponymous consulting firm. “People taking money out of markets, putting it in safer instruments. Banks see this as an opportune time to build their deposit base.” BLOOMBERG