0.001% vs 4.25%: Where Did the Rate Hike Go? The 4,250x Spread Banks Froze on the Same Day

On 17 September, the Hong Kong Monetary Authority raised its base rate by 25 basis points to 4.25%, the first hike since July 2023. On the same day, the three note-issuing banks announced in unison: best lending rates unchanged, Hong Kong dollar savings rates unchanged. HSBC and Bank of China (Hong Kong) held prime at 5.00%; Standard Chartered held at 5.25%. The HKD savings rate stayed at 0.001%. Balances below HK$5,000 continued to earn zero.

Where did the rate hike go? One number frames the question: base rate 4.25% divided by savings rate 0.001% equals 4,250 times. HK$100,000 in a savings account earns HK$1 of interest a year. To be clear: 4,250 times is an arithmetic ratio, not a spread banks earn — the base rate is the HKMA discount-window rate, not a rate at which deposits can be lent or invested. But the direction is undeniable: the hike gave savers not one extra cent.

The X-ray: one day, one bank, two rates

The most revealing contrast is from the same day: HSBC raised its US dollar savings rate from 0.001% to 0.125% — a 125-fold increase — while its Hong Kong dollar savings rate rose by exactly zero. It is not that the market forbids passing the hike on. It is that Hong Kong dollar savers did not get it.

This is not a one-off freeze. Nor is the savings rate a one-way ratchet: it rose from 0.001% to 0.625% by January 2023 (the prescribed savings rate at the time) before falling back to today’s 0.001% — a 99.84% fall from that January 2023 level. The best lending rate fell 14.9% from its 5.875% peak in July 2023 to 5.00%. The two falls start from different points, so they are not a same-period comparison; but the direction is consistent: in the easing cycle savers absorbed most of the fall, and in the hiking cycle they have received none of the rise.

The regulator has said the quiet part out loud. In January 2026, HKMA Deputy Chief Executive Arthur Yuen said bank deposits had already returned to zero rates, and that further cuts to the best lending rate would compress net interest margins and hurt bank profitability: from a regulatory standpoint, he did not want margins squeezed further. Translation: the spread is the banks’ safety buffer, and depositor returns are not the priority.

One number, two victims: the MPF Conservative Fund

The 0.001% does not only appear at the bank counter — it is the MPF Conservative Fund’s prescribed savings rate. Under MPFA Guideline III.6, the prescribed savings rate is the simple average of the three note-issuing banks’ Hong Kong dollar savings rates. The number banks pay savers directly sets the Conservative Fund’s fee gate: a trustee may only deduct the administration fee in a month when the fund’s monthly return beats the hurdle derived from the prescribed savings rate — about 0.001% ÷ 12, or roughly 0.000083% for the month. A normal month’s Conservative Fund return of about 0.1% clears that hurdle by roughly 1,300 times.

The return itself is the sharper point. Conservative Funds invest in Hong Kong dollar short-term bank deposits and short-term bonds (average maturity no more than 90 days). They earn wholesale short-term market rates: ten-year annualised net returns run about 1.1–1.5% (BOC-Prudential 1.46%, Principal 1.21%). The same Hong Kong dollar short-term money earns about 1.3% inside a Conservative Fund and 0.001% in a savings account — a 1,300-fold gap. The difference is not the money; it is the pipe. To be clear: the fund expense ratios of 0.77–1.07% are already reflected in those net returns, not deducted on top; as a share of gross return, fees run roughly 34–47% (FER ÷ (net return + FER)).

The compounding cost: one HK$100,000, three thirty-year paths

HK$100,000 left in a savings account for thirty years earns HK$30 of interest in total — not enough for a bowl of wonton noodles. The same money compounding in a Conservative Fund gains HK$47,327; rolled in time deposits (assuming the rate held, for illustration only), HK$180,679. Note: the rolled time-deposit path assumes continued access to selected-customer offers, which are not generally available — BOC HK’s 12-month 3.50% requires a HK$1m minimum at a branch; HSBC’s 3-month 2.95% requires a HK$50,000 minimum online, and HSBC’s general-customer 3-month rate is 2.4%.

The mortgage side of the asymmetry is starker still: a HK$3 million mortgage at the 3.25% cap rate costs HK$97,500 a year in interest; HK$3 million in savings earns HK$30 a year. The same bank, on the same day, charges you 3,250 times what it pays you. Even the much-advertised “relationship” bonus is decoration: total relationship balances of HK$1 million and above earn an extra 0.001%, for a combined 0.002% — HK$20 a year on HK$1 million.

The fix: do not wait for the bank — move the money

1. Keep only one to two months of expenses in a savings account. Sweep the rest into time deposits (13 October board rates: BOC HK 12-month up to 3.50% for selected customers, HK$1m minimum, branch; HSBC 3-month 2.95% for selected customers, HK$50,000 minimum, online; general-customer rates are lower) or money market funds. Virtual-bank welcome rates are capped and time-limited — check what the rate becomes after the promotion expires before treating it as a long-term return.
2. Inside MPF, use the Conservative Fund as a parking bay, not a destination. It is the system’s short-term parking slot at roughly 1.3% net of fees. Long-term money belongs back in long-horizon allocations such as the DIS Core Accumulation Fund. Execute switches on the T+1/T+2 forward-pricing basis and avoid the 27–28 October FOMC week.
3. Do not wait for banks to raise savings rates. The regulator has said plainly that it does not want margins squeezed further. The savings rate has risen before — to 0.625% in January 2023 — but in this hiking cycle banks have chosen to hold. Waiting for banks to rediscover generosity is waiting for a hike that may never arrive.
4. Mortgage borrowers should watch the cap rate, not HIBOR. The effective HIBOR-mortgage rate is still the 3.25% cap. Until 1-month HIBOR falls below 1.95%, HIBOR volatility has no effect on your monthly payment.

0.001% is not the market rate. It is the price banks choose to pay you in a world where the HKMA base rate is 4.25%. The choice is yours: move the money, or keep collecting HK$1 a year.