Bank Deposit Interest Rates Mostly in the 0% Range... "Saving Has Become Meaningless" (Comprehensive)

Mortgage Loan Interest Rates Also at Record Low Levels

[Asia Economy Reporter Kim Min-young] The variable interest rate mortgage loans (home mortgage loans) at commercial banks have dropped to an all-time low. This is due to the Bank of Korea's big cut in the base interest rate, which led to a decline in bank deposit product interest rates, causing the Cost of Funds Index (COFIX), which is based on these rates, to hit its lowest level. As a result, the monthly repayment burden for users of variable-rate home mortgage loans is expected to decrease. Bank savings and time deposit interest rates have also entered the 0% range, the lowest ever recorded. Some predict that customers may withdraw their funds as they no longer find meaning in depositing money in banks.

According to the Korea Federation of Banks on the 17th, the COFIX based on new transaction amounts for March was 1.26%, down 0.17 percentage points from the previous month. This is the lowest level in 10 years since the COFIX was first announced in February 2010. The new balance-based COFIX also fell 0.06 percentage points from the previous month to 1.38%, marking the ninth consecutive month of decline since its first announcement in July last year. The existing balance-based COFIX (1.66%) also dropped 0.06 percentage points, declining for 12 consecutive months.

COFIX refers to the weighted average interest rate of funds raised by eight banks. When the interest rates of deposit products such as savings, time deposits, and bank bonds handled by banks increase or decrease, COFIX rises or falls accordingly.

The balance-based COFIX includes savings, time deposits, negotiable certificates of deposit, and financial bonds. The new balance-based COFIX adds other deposits and borrowings to the existing balance products.

Following the COFIX reduction, the variable-rate home mortgage loan interest rates at KB Kookmin Bank, Woori Bank, and NH Nonghyup Bank were lowered starting today. The mortgage loan interest rates linked to the COFIX based on new transaction amounts are 2.47?3.97% for Kookmin, 2.66?3.66% for Woori, and 2.51?4.12% for Nonghyup, down 0.17 percentage points from the previous day. The mortgage loan interest rates linked to the new balance-based COFIX are 2.74?4.24% for Kookmin, 2.78?3.78% for Woori, and 2.55?4.16% for Nonghyup, down 0.06 percentage points from the previous day.

Shinhan Bank and Hana Bank, which are less affected by COFIX due to different interest rate calculation methods, set their mortgage loan interest rates linked to the COFIX based on new transaction amounts at 2.55?3.80% and 2.843?4.143%, respectively, starting today. For the new balance-based COFIX, they applied 2.55?3.80% and 2.563?3.863%, respectively. Shinhan Bank's rates remained the same as the previous day, while Hana Bank's rates decreased by 0.002 percentage points.

Earlier, commercial banks had promptly lowered deposit interest rates following the Bank of Korea's big cut. With Shinhan Bank lowering its time deposit interest rates yesterday, the one-year time deposit interest rates at the five major commercial banks all entered the 0% range. Shinhan Bank reduced the interest rate on its representative product, SOL Convenient Time Deposit, from 1.10% to 0.90%. Last month, Kookmin Bank lowered the Super Time Deposit interest rate to 0.90%. Woori Bank also reduced the WON Deposit interest rate to 0.65%.

On the 1st, Nonghyup Bank lowered the interest rate on its Great Satisfaction Real Power Deposit from 1.10% to 0.75%. On the same day, Hana Bank cut the interest rate on its Hana OneQ Time Deposit from 1.10% to 0.60%, a 0.5 percentage point decrease.

As depositing 10 million KRW in commercial banks now yields less than 90,000 KRW in interest annually, consumers are voicing complaints that "bank deposits have become meaningless." Considering inflation rates, this is effectively a negative interest rate.

Banks are also in a difficult position. While attracting deposits at low funding costs is advantageous, they now have to worry about customer attrition due to "too low interest rates." A commercial bank official said, "We are concerned not only about the loss of customers who mainly deposit money but also about the negative impact on our brand image," adding, "It seems unlikely that both deposit and loan interest rates will rise anytime soon, raising concerns about deteriorating profitability."