Deposit Interest Rates Rise Above 3%... Reverse Money Move Accelerates

As the Bank of Korea raises the base interest rate, commercial banks consecutively increase deposit rates... 3% range savings accounts emerging one after another

[Asia Economy Reporters Jehoon Yoo, Minwoo Lee] As commercial banks' deposit interest rates enter the 3% range, the 'reverse money move' phenomenon, where market funds flow into savings and time deposits, is accelerating. With the base interest rate expected to rise to 2.25~2.5% by the end of this year and asset markets such as stocks, real estate, and virtual assets predicted to weaken accordingly, this trend is expected to continue for the time being.

According to the financial sector on the 27th, each commercial bank is rapidly raising interest rates following the Bank of Korea's base rate hike (1.50→1.75%). Woori Bank plans to raise the interest rates on most of its savings and time deposit products currently on sale by up to 0.40 percentage points starting today, while Shinhan, Hana Bank, and NH Nonghyup Bank will raise theirs by up to 0.40 percentage points and 0.25 percentage points respectively from the 30th. In addition, KB Kookmin Bank is also considering raising deposit interest rates.

As banks raise deposit interest rates, savings and time deposit products with annual maximum interest rates exceeding 3%, including preferential rates, are emerging one after another. Woori Bank's non-face-to-face exclusive product, 'Woori First Transaction Preferential Deposit,' offers a maximum annual interest rate of 3.10% when preferential conditions are applied, and the 'WON Savings' also rose to a maximum of 3.00%, surpassing the 3% mark. Hana Bank's 'Salary Hana Monthly Compound Interest Savings' and 'Main Transaction Hana Monthly Compound Interest Savings' also exceeded 3% with a 1-year maturity rate of 3.20%, and the 'Hana Travel Savings' is approaching the mid-3% range at 3.45%.

With deposit interest rates rising like this, the reverse money move phenomenon, where market funds flow into fixed deposits and savings, is also accelerating. The balance of fixed deposits at the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) stood at 674.4346 trillion KRW as of the 24th, an increase of 12.4747 trillion KRW compared to the end of last year. On the other hand, capital outflows continue in the asset market. According to the Korea Financial Investment Association, customer deposits waiting to buy stocks decreased by 12.519 trillion KRW from 71.733 trillion KRW on January 3 to 59.214 trillion KRW the day before. This means that large sums of money from the stock market are flowing into banks.

The acceleration of the reverse money move phenomenon is due to the continued weakness in asset markets such as stocks and virtual assets following the base interest rate hikes. As of the previous day, the KOSPI annual return rate was -12.26%. Bitcoin, considered the key currency of virtual currencies, is also trading at a level about 40% lower than at the beginning of the year. The real estate market is also struggling due to the impact of interest rate hikes and regulations such as the Debt Service Ratio (DSR). Considering the emergence of bank savings and time deposit products with interest rates in the 3% range, more investors are judging that "earning interest is better than nothing."

Industry insiders believe that this reverse money move phenomenon is likely to continue within the year. The weighted average interest rate of deposit banks (based on new contracts) has risen to 1.78% for fixed deposits and 2.63% for savings, and there is growing expectation that the base interest rate will rise to 2.25~2.50% by the end of this year. A financial sector official said, "With future base rate hikes, bank savings and time deposit interest rates are likely to rise to around 3~4%. As the asset market downturn continues, financial consumers will respond by increasing the proportion of cash, a safe asset, for the time being."