[Wandering Yetech Tribe]② Hesitation in 'Switching' Amid Interest Rate Hike Slowdown

Regular Savings Account Early Termination and New Subscriptions Continue Steadily in November... However, a Declining Trend Compared to the Previous Month

[Asia Economy Reporters Yu Je-hoon and Bu Ae-ri] Lee Hyung-jun (32), a rookie office worker, deposited a lump sum of 10 million won, which he had carefully saved last year, into a fixed deposit product with an annual interest rate of 3.8% at a mutual finance institution last April. Lee had been watching the steady rise in deposit interest rates and was preparing to "switch" to a product with a mid-5% interest rate at commercial banks last month. However, despite the base rate being raised by 0.25 percentage points on November 24, there was no significant movement. He said, "I thought switching to a fixed deposit with a mid-5% interest rate would be beneficial, but it seems the rates are no longer rising," adding, "I'm considering whether to maintain the account for the remaining five months."

In October, the early termination and new subscription amounts of fixed deposits at the five major banks, which had reached their highest levels this year, showed some slowdown. This is interpreted as a result of the U.S. Federal Reserve (Fed) and the Bank of Korea signaling peak interest rates and possibly ending the rate hike race, along with financial authorities putting brakes on rapid increases in deposit interest rates, leading more savers to adopt a wait-and-see approach.

According to the financial sector as of November 28, the early termination amount of fixed deposits at the five major commercial banks (KB Kookmin, Shinhan, Woori, Hana, and NH Nonghyup) was 28.134 trillion won, and new subscription amount was 61.3314 trillion won. Compared to September (approximately 14 trillion won and 49 trillion won, respectively), these figures remain high but decreased by about 14% and 24% month-on-month, respectively.

Since the second half of this year, both early termination and new subscription amounts of fixed deposits have shown a sharp increase. The early termination amount at the five major banks, which was around 8 trillion won in August, rose to about 14.5 trillion won in September and expanded to 32.6 trillion won in October. The new subscription amount, which was around 30 trillion won in August, increased to 49.232 trillion won in September and 80.119 trillion won in October.

The background to this is the soaring deposit interest rates. The weighted average interest rate for one-year fixed deposits at commercial banks rose from 1.83% in January to 4.49% in October this year. With an increase of 266 basis points (1bp=0.01%) in less than a year, this has led to movements from demand deposits and cases where customers break fixed deposits opened during low-interest periods to re-subscribe to higher interest products.

However, the rapid growth slowed somewhat last month. After the "baby step" (a 0.25 percentage point base rate hike) at the end of last month, the Bank of Korea fixed the final rate level at around 3.50~3.75%, and financial authorities imposed restrictions on deposit interest rate hikes by banks, leading to a slight decrease in related demand.

In October, when the increase in early termination and new subscription amounts was most pronounced, the weighted average interest rate for one-year fixed deposits rose by 66 basis points month-on-month, the highest this year. Considering that the average monthly increase in weighted average interest rates was 23 basis points (ranging from 2 to 60 basis points) until September, this was a relatively high increase.

On the other hand, this month, the interest rate hike has noticeably slowed due to financial authorities' restrictions on deposit interest rate increases. Currently, among the five major commercial banks, only Hana Bank offers a fixed deposit interest rate in the 5% range (Hana's fixed deposit at 5.0%). The fixed deposit rates at KB Kookmin and Woori Banks, which once exceeded 5%, have dropped to the high 4% range, and NH Nonghyup Bank's "NH All One e-Deposit" offers a 5.1% rate only when including a preferential rate of 0.30 percentage points.

A representative from a commercial bank said, "Both the U.S. Federal Reserve and the Bank of Korea have expressed opinions on the maximum extent of rate hikes, and financial authorities have already put brakes on rate increases, which seems to have significantly lowered expectations," adding, "Depositors who were considering switching have turned to a wait-and-see stance or decided it is better to maintain existing products as the relay of deposit interest rate hikes has stopped."