[Asia Economy Reporter Kim Hyo-jin] Under the ultra-low interest rate policy, fixed deposit interest rates in the 0% range are becoming entrenched. As a result, fixed deposits at commercial banks are rapidly withdrawing like an ebb tide, and funds without a proper destination are increasingly drifting into 'waiting places,' intensifying the flow of idle funds in the market.
According to the 'Interest Rate and Fee Comparison Disclosure' program by the Korea Federation of Banks on the 12th, among 17 major fixed deposit products from the five major commercial banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?only four products offer interest rates exceeding 1% (based on 12 months) even at the highest preferential rate.
Right after the Bank of Korea implemented an additional cut to the base interest rate at the end of May, only one or two products had interest rates below 1% by the same standard. The 1% threshold, which had been barely maintained, has completely collapsed over the past month and a half. Some products now offer a highest preferential rate as low as 0.60%. The highest rate available is 1.30%.
The fixed deposit balance of the five major banks at the end of last month was 633.0914 trillion KRW, a decrease of 10.6785 trillion KRW compared to the end of the previous month. This marks the third consecutive month of decline since reaching 652.3277 trillion KRW at the end of March. The month-to-month decrease has been growing significantly, with 2.7079 trillion KRW in April and 5.8499 trillion KRW in May.
The demand deposit balance of the five major banks at the end of last month was recorded at 566.316 trillion KRW, an increase of 24.3628 trillion KRW compared to the previous month. Demand deposits temporarily decreased by 1.3649 trillion KRW in April but have increased for two consecutive months since rising by 2.7259 trillion KRW in May.
Demand deposits include checking accounts and money market deposit accounts (MMDA), which allow funds to be withdrawn at any time. While they offer the advantage of flexible deposits and withdrawals, they typically yield almost no interest, indicating that funds without a decided investment destination temporarily pass through these accounts.
A financial industry official explained, "It means that as it becomes difficult to expect interest income from deposits and the financial investment market shrinks due to various fund accidents, there are more funds hesitating and wandering."
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