People always fail to understand that high returns always correspond to higher risk. The reason why banks and other traditional financial institutions offer such low rates paid on products like CDs and savings accounts is because those accounts are free of risk (for the consumer). An 8% return is suspiciously high, and any smart investor would assume that such a return can only be achieved by making the product more risky.
This, coupled with China’s general lack of public knowledge about its deposit protection schemes, is a recipe for disaster. I have been inside Chinese banks and have never once seen any indication of coverage by deposit protection schemes, so it’s really hard to know what’s covered and what’s not. Meanwhile, in the United States, banks have plaques and stickers that say “Member FDIC” and “Your savings insured by the US Government for up to $250,000” next to every teller window and on every advertisement.
People always fail to understand that high returns always correspond to higher risk. The reason why banks and other traditional financial institutions offer such low rates paid on products like CDs and savings accounts is because those accounts are free of risk (for the consumer). An 8% return is suspiciously high, and any smart investor would assume that such a return can only be achieved by making the product more risky.
This, coupled with China’s general lack of public knowledge about its deposit protection schemes, is a recipe for disaster. I have been inside Chinese banks and have never once seen any indication of coverage by deposit protection schemes, so it’s really hard to know what’s covered and what’s not. Meanwhile, in the United States, banks have plaques and stickers that say “Member FDIC” and “Your savings insured by the US Government for up to $250,000” next to every teller window and on every advertisement.