But as the money market situation stabilizes and the interest rates fall, the returns rate for online funds such as Yu'ebao has fallen accordingly.
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Analysts said that online money funds partially rely on agreement deposits with traditional banks to achieve higher returns rate (the banks offers higher rates of interest for corporate clients that have large amounts of deposits than what is offered to individual small savers). Traditional banks could refuse agreement deposits from online money funds, thus reducing returns rate of those online fund products.
It is not clear whether the current fall in the returns rate of online money funds has anything to do with the traditional banks' refusal to accept agreement deposits.
The regulators, meanwhile, have warned that products such as Yu'ebao are not a form of financial innovation. Some commentators even claimed that they are like usury loans.
The stance of the regulators is very vital for the growth of online money funds, although its effect is yet to unfold.
In the long term, the returns rate of Yu'ebao and its like would gradually stabilize — just like other ordinary money funds — and it would change in line with money market conditions. It is impossible for them to offer exceptionally high rate of returns for investors.
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