The invention discloses an imitation gold bonding alloy wire and a preparation method thereof. The imitation gold bonding alloy wire comprises 65-80wt% of alloy wire silver, 17-32wt% of copper, 0.5-2wt % of indium and 0.5-1wt% of palladium. A certain proportion of copper, palladium and indium are added on the basis of the silver, so that the cost of the raw materials is extremely low. The imitation gold bonding alloy wire has excellent mechanical performance and can meet the welding technique requirements under conventional conditions, and the manufacturing cost of LED (Light Emitting Diode) and IC (Integrated Circuit) encapsulation can be greatly reduced; meanwhile, the color of the appearance of the imitation gold bonding alloy wire is consistent with the color of 22K-18K gold, and the perfect imitation gold is obtained.