The End of the Low-Interest Era... Emergence of 3% Range Deposits

IBK, K-Bank, and Others Launch Deposit Products with 3% Interest Rates
Money Moves to Savings and Time Deposits Amid Stock Market Instability and Rate Hikes

[Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] As the era of high interest rates begins with the US-driven rate hikes, deposit products offering interest rates in the 3% range are emerging one after another at commercial banks. It is expected that a full-scale "money move" will take place, with funds invested in risky assets such as stocks flowing into safer products like savings and time deposits.

According to the Consumer Portal of the Korea Federation of Banks on the 17th, the deposit product offering the highest interest rate currently in the first-tier financial sector is IBK Industrial Bank of Korea’s “IBK D-DAY Account.” It offers 3.04% for a 12-month term with a limit of 200 million KRW. The interest rate for the “IBK First Meeting Account” also reaches 3% (12 months). Previously, only the internet-only bank K Bank offered deposit products with interest rates in the 3% range, but now first-tier commercial banks with branches have introduced 3% products as well. As the low-interest-rate era ends and the interest rate rises, attention is turning to bank savings and time deposits, which is interpreted as a more aggressive move to attract funds.

This money move is also observed in macroeconomic indicators. According to the Bank of Korea’s “Monetary and Liquidity Statistics,” the broad money supply (M2 basis) in April reached 3,667.1 trillion KRW, an increase of 8.5 trillion KRW (0.2%) from the previous month. This is a 9.5% increase compared to April last year. M2 includes not only cash, demand deposits, and checking accounts that can be used like cash immediately but also money market funds (MMF), time deposits under two years, beneficiary certificates, negotiable certificates of deposit (CD), and repurchase agreements (RP), which are short-term financial products that are easy to liquidate.

Liquidity, which had been increasing sharply every month since the spread of COVID-19, decreased for the first time in three and a half years in March. However, as interest rates rose and the stock market fluctuated, funds flowed into bank savings, time deposits, and demand deposits, causing liquidity to increase again within a month. The Bank of Korea explained, "The phenomenon of market funds moving away from risky assets and flowing into regular savings and time deposits continues, and the slight increase in household loans in April had a significant impact."

Therefore, banks are also taking a more aggressive approach to business. K Bank announced that it will additionally offer a preferential interest rate of 2.0% for its “CodeK Free Savings (3 years, 3.0% annual interest)” product. After the product launched on the 1st, more than 104,229 accounts were opened in just two days, exceeding the initially planned 10,000 accounts by more than ten times, prompting another effort to attract customers. This product allows monthly deposits of up to 300,000 KRW for a period of three years. It received a great response as customers could receive a 5% interest rate simply by signing up without any special conditions. Shinhan Bank also launched the “Shinhan Solmanhae Savings” on the 8th, offering up to 5% annual interest (pre-tax, 12 months). It is a one-year free installment savings product, and by lowering the threshold for preferential interest rates, it gained popularity, reportedly selling 1,000 accounts daily.

A financial industry official said, "With both the US and South Korea expected to raise benchmark interest rates and the KOSPI falling to the 2,300 range for the first time in 20 months, causing stock market instability, the shift toward savings and time deposit products is expected to accelerate."