Savings Banks Raising Deposit Rates, Fixed Deposits Yield Over 3%

[Asia Economy Reporter Song Seung-seop] Large savings banks have begun to raise deposit interest rates one after another. This is interpreted as a strategy to retain deposit customers in line with the Bank of Korea's successive base rate hikes. With expectations that the base rate hike trend will continue for the time being, the atmosphere of interest rate increases in the savings bank industry is also expected to continue.

According to the industry on the 28th, SBI Savings Bank, which has the largest asset size, raised the interest rates on deposit products by 0.4 to 0.5 percentage points starting from the 26th. The target products are fixed deposits, installment savings, and regular savings products sold at branches, internet banking, and Saida Bank. For a 12-month subscription, the fixed deposit rate increased from 2.65% to 3.05%, and the revolving fixed deposit rate rose from 2.75% to 3.15%.

An SBI Savings Bank official explained, "Due to the recent continuous interest rate increases, competition for deposits in the financial sector is becoming fierce, and we decided to raise interest rates to enhance the competitiveness of our deposit products."

OK Savings Bank also raised interest rates on the same day. The OK fixed deposit rate was set at 2.75%, up 0.1 percentage points for subscriptions of one year or more, and 3.0%, up 0.35 percentage points for two years or more. The OK e-fixed deposit was higher at 2.85% (0.10 percentage points increase) for one year or more, and 3.10% (0.35 percentage points increase) for two years or more. In addition, OK Safe Fixed Deposit and ISA Fixed Deposit saw slight increases of 0.08 to 0.10 percentage points.

Some savings banks have launched special deposit products. Sangsangin Savings Bank released a special fixed deposit on the 24th that offers interest benefits exceeding 3%. It is sold on a first-come, first-served basis until the total limit of 200 billion KRW is exhausted. The revolving fixed deposit interest rate for 12 months increased by 0.44 percentage points to 3.2% for face-to-face products. The minimum subscription amount is 100,000 KRW.

On the following day, the 25th, Sangsangin Plus Savings Bank conducted a special fixed deposit at 3.36%. The products targeted were revolving fixed deposits and fixed deposits, designed with a total limit of 100 billion KRW. When subscribing non-face-to-face, the revolving fixed deposit interest rate rose by 0.56 percentage points compared to before. The fixed deposit rate for 12 months or more also increased by 0.39 percentage points to an annual rate of 3.16%.

The overall interest rates in the industry are also rising sharply. Currently (on the 28th), the average deposit interest rate of 79 savings banks is 2.78%. Considering that the average rate at the end of last year was 2.37%, it has risen by 0.41 percentage points in less than half a year. Compared to 1.90% in 2020, when the low interest rate trend continued, the difference is 0.88 percentage points.

Lee Chang-yong, Governor of the Bank of Korea, is speaking at a press conference on monetary policy direction held at the Bank of Korea in Jung-gu, Seoul on the 26th. On the same day, the Monetary Policy Committee of the Bank of Korea raised the base interest rate by 0.25 percentage points from 1.50% to 1.75%. Photo by Joint Press Corps

The increase in deposit interest rates by savings banks is largely due to the Bank of Korea's successive base rate hikes. The Bank of Korea has raised the base rate five times since August last year. The base rate, which was 0.75%, was raised to 1.75% on the 26th. From the perspective of savings banks, which have fewer funding channels, they need to offer higher deposit interest rates than commercial banks to retain deposit customers.

This atmosphere is expected to continue for the time being. The Bank of Korea has indicated that the current base rate is not high. On the 26th, Lee Chang-yong, Governor of the Bank of Korea, stated, "I think it is a reasonable expectation that the base rate predicted by the market will rise to 2.25 to 2.5%."