Yu'e Bao and WeChat wealth: how China's app-based money funds work
Hundreds of millions of people in China park spare cash in money market funds inside Alipay and WeChat. How they work, how safe they are and how to use them.
One of the biggest changes in how Chinese households save came through their phones. In 2013 Alipay launched Yu'e Bao (余额宝), which let users move spare cash from their payment balance into a money market fund with a tap. It grew into one of the largest money funds in the world, and WeChat followed with its own wealth-management services, such as Licaitong (理财通). Today, these app-based funds are where many people keep everyday savings. This guide explains how Yu'e Bao and WeChat money market funds work, how safe they are and how to use them well.
What you are actually buying
Money in Yu'e Bao or a similar service is invested in a money market fund run by a licensed fund company. The fund buys short-term, high-quality assets such as bank deposits, short-term bonds and central bank bills. Returns are calculated every day and shown as a seven-day annualised yield or "earnings per 10,000 yuan". Because they follow short-term interest rates, yields rise and fall over time; when rates in China are low, as they have been, fund yields are modest too.
The apps now offer a choice of money market funds from different fund companies, so the yield you earn depends on which fund you select. Differences between funds are usually small.
Understanding the yield figures
The seven-day annualised yield shows what you would earn over a year if the past week's returns continued. "Earnings per 10,000 yuan" shows how much CNY 10,000 earned yesterday. For example, a seven-day annualised yield of 1.5% means CNY 10,000 would earn roughly CNY 150 over a year, or about CNY 0.41 a day. Neither figure is guaranteed; both change daily.
How safe are app-based money funds?
Money market funds are low risk, but they are investments, not bank deposits. Deposits at Chinese banks are covered by the national deposit insurance scheme up to CNY 500,000 per depositor per bank; fund holdings are not. In practice, money funds hold safe assets and losses are very rare, but the yield is not guaranteed. Regulators have also tightened rules on how much can be redeemed instantly, so very large withdrawals may take until the next business day.
Using money funds well
App-based money funds work well as a home for an emergency fund and spending money you want to earn a little interest on, because you can pay and transfer directly from them. For money you will not need for several years, they are usually not enough on their own: low yields barely keep pace with inflation over time. Consider government bonds, longer-term deposits or diversified funds for longer goals, and the personal pension scheme for its tax benefit.
Watch out for riskier products
Inside the apps you will also see riskier products, such as bond funds, mixed funds and stock funds, sometimes shown next to the money fund. Check the product's risk rating and what it invests in before moving money; a higher advertised return almost always means higher risk. Our guide to China's R1 to R5 fund risk ratings explains what each level means. Money market funds are typically rated at the lowest risk level.
Money funds and interest rates
Because money fund yields follow short-term rates, they fell as the People's Bank of China eased policy. Our guide to China's loan prime rate explains the wider rate picture, including what low rates mean for savers and borrowers.
A sensible savings mix
Many households keep a few months of expenses in an app-based money fund for convenience, hold medium-term savings in bank deposits or government bonds, and invest for the long term through diversified funds or the personal pension. Paying into the housing provident fund through work adds another layer of savings. Our savings calculator shows how regular saving adds up at different yields.
Frequently asked questions
Is Yu'e Bao a bank account?
No. It is a money market fund, so it is not covered by deposit insurance.
Can I lose money in Yu'e Bao?
Losses are very rare because the funds hold safe assets, but returns are not guaranteed.
What is the seven-day annualised yield?
What you would earn over a year if the past week's returns continued.
Sources
This article is general information, not financial advice.