PayPay Bank is offering 2% interest on both dollar and yen deposits, many times the rates advertised by competing banks, as financial institutions in Japan scramble to attract funds in an environment where monetary policy is tightening and savers are starting to shop around.
The rate applies to yen deposits of up to ¥5 million, with no limit for dollar deposits. It is effective immediately, the internet-only financial institution announced Wednesday.
PayPay Bank’s standard rates are 0.1% for yen deposits and 0.05% for dollar deposits.
To qualify for the new program, branded as a "Deposit Revolution" by the bank, certain conditions must be met, such as linking a PayPay Bank account to the PayPay payment app, but the rate is not promotional and the money does not have to be kept on deposit for a certain period of time.
PayPay Bank is one of Japan’s smaller financial institutions. As of the end of September, its deposits totaled just under ¥2 trillion, compared with Rakuten Bank's ¥11.1 trillion and Sumitomo Mitsui Trust SBI Net Bank's ¥9.5 trillion. As of September 2024, the bank had 8.37 million accounts, compared to Rakuten Bank's 16.19 million.
PayPay, which is related to PayPay Bank, operates the largest mobile payment system in Japan. PayPay, the app, has 66 million users.
The bank’s offer comes as interest rates rise in Japan after decades at or near zero and as financial institutions in the country compete for deposits. It also comes just weeks ahead of the Bank of Japan’s next policy meeting, where it is expected to increase rates for the third time this year.
Average bank deposit rates went from 0.004% as recently as March to 0.12% in November, according to Bank of Japan data.
Dollar deposits generally earn much more than yen deposits, as the U.S. Federal Reserve’s fed-funds rate is 4.50%-4.75% compared with 0.25% for the BOJ’s key short-term interest rate. Vanguard’s Federal Money Market, which is a bellwether for dollar interest rates, currently pays 4.57%.
Dollar demand deposit rates in Japan tend to be lower than those available in other countries, but time deposit rates are more competitive. SBI Shinsei Bank pays 3.5% on one-month dollar deposits, while Aeon Bank pays 2.1% for one-month dollar deposits.
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