Highest Preferential Interest Rate Only in the Mid-1% Range
Decline in Time Deposits Accelerates
[Asia Economy Reporter Kim Hyo-jin] With the Bank of Korea's consecutive base rate cuts, the era of '0% interest rates' for savings and time deposit products at commercial banks has become visible. In particular, for savings deposits, since the base interest rates of many products are already set in the 0% range, even when considering the highest interest rates with preferential rates applied, most barely exceed 1%.
From the consumer's perspective, they are forced to seek products with even 0.1 percentage points higher interest rates. Amid this, major banks are competing by offering their own 'exceptional' interest rates with various conditions attached.
According to the financial industry on the 2nd, Shinhan Bank's 'Shinhan 11st Time Deposit,' launched the previous day, is a 3-month limited product that can be subscribed to with a minimum of 500,000 KRW and a maximum of 3 million KRW, offering a basic annual interest rate of 0.8% and a preferential interest rate of 0.3 percentage points for new sign-ups to the Open Banking service.
If customers make their first payment with the 11st Shinhan Card and spend more than 110,000 KRW, they receive an additional 2.2% annual reward at maturity, allowing for a maximum benefit of 3.3% per year.
Generally, an interest rate in the mid-1% range is considered high. NH Nonghyup Bank's 'NH Forty Deposit' offers a basic interest rate of 0.95%, with an additional 0.5 percentage points depending on conditions, providing a maximum interest rate of 1.45%. The same bank's 'e-Interest Preferential Deposit' has a basic interest rate of 1.00% and a maximum preferential interest rate of 1.40%.
Hana Bank's 'Little Big Time Deposit' also offers a relatively high interest rate of 0.80% basic and up to 1.5%. Woori Bank sells the 'Deposit with Increasing Interest Rate When Gathered,' which offers up to 1.20% interest.
Although new products are being launched one after another, the popularity of deposits is rapidly declining.
As of the end of last month, the total amount of time deposits at Shinhan, KB Kookmin, Woori, and NH Nonghyup Banks was 512.1758 trillion KRW, down 0.87% from April (516.6854 trillion KRW). Compared to the 0.30% decrease from March (518.2475 trillion KRW) to April, the decline widened by 0.57 percentage points.
On the other hand, the balance of demand deposits at the end of last month was 541.9532 trillion KRW, a 3.99% increase compared to April (521.1273 trillion KRW). Demand deposits allow free withdrawals and deposits but have low interest rates, so they tend to hold money that has not yet found a place to go or is in transit.
This means that in a situation where deposit interest rates have sharply fallen, there is a considerable amount of money that has not found a suitable investment destination.
An official from a commercial bank said, "Even with preferential interest rates applied, products with interest rates not exceeding 1% will continue to emerge," and predicted, "The outflow from time deposits will continue in the future."
Meanwhile, major banks are beginning to lower interest rates on savings and time deposits in earnest. KB Kookmin Bank decided to generally adjust the base interest rates of about 50 deposit products starting with its flagship product, 'Kookmin Super Time Deposit,' on the same day. Hana Bank also lowered the interest rates of some products and the interest rates payable upon early termination of deposits.
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