Dollar-based wealth management is no longer attractive! Last year, 80% of dollar wealth management returns did not offset exchange rate losses

Financial Times Reporter Tang Yaohua Intern Huang Yue

In recent months, the Chinese yuan has been appreciating rapidly, while the US dollar has been depreciating against the yuan. The USD/CNY exchange rate has repeatedly fallen below 7 and 6.9, leaving investors who invested at last year’s high points in USD confused. Many investors switched to USD deposits or financial products expecting yields of over 4%, but now, due to the significant depreciation of the dollar against the yuan, they not only have their gains wiped out but also face losses on their principal if they convert back.

A Jiangsu investor told Caixiaoquan that last year he used his family’s foreign exchange quota to buy $150,000 worth of USD savings deposits at 4% interest. The highest exchange rate he paid was 7.3. After the deposit matured this year, he converted it back in batches (the lowest exchange rate he received was 6.85), losing about 10,000 yuan. Another investor exchanged several thousand dollars at rates of 7.24 and 7.31 to buy USD fixed deposits. At the current exchange rate, he has already lost over 10,000 yuan but has not yet converted back, planning to hold long-term.

On social media, many investors posted that they bought USD deposits or USD wealth management products at high levels last year. After the USD to CNY exchange rate broke below 7 and 6.9, they already experienced losses.

Wind data shows that as of February 27, the USD/CNY exchange rate fell to 6.8559, a decline of 5.71% over the past year. Compared to the high of 7.3518 on April 10 last year, it has dropped by 6.75%.

Investing at high exchange rates, whether in USD fixed deposits or USD wealth management products, likely cannot offset the losses caused by the USD’s depreciation against the yuan. According to Nanfang Financial Wealth Management, the average annual yield of USD wealth management products at the end of last year was 3.63%. Only six products had yields over 5%, and 46 products (41.07%) had yields over 4%.

Suppose an investor bought a “Bank XYZ 6-Month Overseas Enhanced QDII” product on February 26, 2025, when the USD/CNY rate was 7.2547. They exchanged 362,700 yuan for $50,000 to buy the product. One year later, on February 26, 2026, the product’s net value increased by 4.6% (an annual return of 4.6%), with a market value of $52,299.33. The return looks good, but by then, the USD/CNY rate had fallen to 6.8397. If they redeem the product and convert the USD back to yuan at this rate, they only get about 357,700 yuan, resulting in a loss of roughly 5,023 yuan, or 1.38%.

In summary, this investment was initially profitable with a 4.6% return, but due to the 5.7% decline in the USD/CNY exchange rate, the exchange rate loss offset the USD wealth management gains and even affected the principal, leading to a slight loss when converting back to yuan.

To avoid losses when converting back to yuan on February 26, 2026, the USD principal plus gains would need to reach $53,033.76 (equivalent to 367,200 yuan at that day’s rate). This requires a yield of 6.07%, but the highest yield last year for USD wealth management products was 5.43%. Achieving a 6.07% return through USD wealth management products is unlikely, meaning most investors who exchanged yuan for USD last year at similar rates are probably at a loss.

Many USD wealth management investors were already struggling with losses by the end of last year. The USD/CNY exchange rate fell by 4.24% last year, but only 19 USD wealth management products (16.96%) had yields over 4.24%. The remaining 83.04% of investors holding USD wealth management products may face principal losses after gains are wiped out by exchange rate depreciation.

Unless investors are willing to take on higher risks, such as investing in high-risk, high-return US stocks or related products, to cover exchange rate losses, the investment risks are greater. As of February 26, 2026, the Dow Jones Industrial Average increased by 13.97% over the past year, while the Nasdaq and S&P 500 rose by 19.94% and 16%, respectively.

A Fujian investor told Caixiaoquan that she bought USD-linked insurance when the exchange rate was 7.03, indirectly investing in dividend-paying funds through this insurance. Her current yield is close to 8%, and she has not experienced losses. She plans to hold for over 20 years, leaving the assets for her children. She values the diversification of USD assets and does not intend to use it for short-term arbitrage but as part of her family’s asset allocation.

Is USD wealth management no longer attractive?

Many investors who already hold USD deposits or wealth management products are worried about further exchange rate losses and are hesitant to convert back. The good news is that recently, the central bank has lowered the foreign exchange risk reserve ratio for forward sales from 20% to 0%, reducing the cost for enterprises to hedge forward FX positions and signaling a desire to prevent the yuan from appreciating too quickly. After all, if the yuan appreciates too fast, export companies could suffer. In recent days, the USD/CNY exchange rate has rebounded.

Investors holding USD wealth management products should not rush to convert. They can wait and convert gradually. Some believe now is a good time to allocate USD assets.

For ordinary investors, considering the high exchange rate risk, unless there is a rigid need to hold USD (such as paying for children’s overseas education, overseas property mortgage, etc.), Caixiaoquan does not recommend converting yuan solely for investment purposes. The narrowing interest rate gap between yuan and USD has also reduced the attractiveness of USD wealth management.

Since the Federal Reserve began its rate cut cycle in September 2024, USD deposit rates and wealth management yields have steadily declined, mostly falling into the 3-4% range, making them less attractive than before. Data from Nanfang Financial Wealth Management shows that most USD wealth management products issued in January have benchmark yields between 3% and 4%, with only a few below 3%. Only five products have a benchmark yield above 4%, while 98.37% have a benchmark below 4%.

Last year, USD cash management products often had yields over 4%, but now their average yield has fallen below 4%. As of February 27, the average seven-day annualized yield of USD cash management products over the past six months was 3.56%.

(Edited by: Wen Jing)