[Heated Savings Competition] "Proportion of Fixed Deposits with 3% Interest Rate Hits Highest in 10 Years"

Sudden Surge from 3% Range to 16.4% Since June

Banks Start Raising Deposit Rates Seriously Ahead of Loan-Deposit Interest Rate Spread Disclosure Amid Criticism of Interest Profit

Bank of Korea's Base Rate Hike Plan
Banks Must Change Deposit Rates Monthly
Products Around 4% Expected by Year-End

On the 7th, a scene at a bank counter in downtown Seoul shows the ongoing trend among major commercial banks to lower loan interest rates while raising interest rates on regular savings and installment savings products. Photo by Jinhyung Kang aymsdream@

At the end of June last year, Ms. Shin Ji-ae (41, female), who withdrew 9 million KRW from her savings and invested it all in Kakao stocks, is now grinding her teeth. "I diligently deposited savings every month for two years to buy stocks, but the return after one year was a staggering '-54%' yield," she said. "I plan to withdraw another 10 million KRW savings at the end of this month and put it into a fixed deposit at my main bank without any hesitation." The fixed deposit interest rate at commercial banks she checked is slightly over 3%. She added, "These days, sharing information about banks with high savings interest rates in friends' group chats is a daily routine."

3% Fixed Deposit Interest Rate Becomes the Trend

In an era of tightening, attention is shifting from the stock market to banks. The proportion of funds in fixed deposits receiving interest rates in the '3% range' has increased to the highest level in over a decade. According to the Bank of Korea's Economic Statistics System's 'Deposit Banks' Loan and Deposit Proportion by Interest Rate Level' (as of the end of June), the 3% to under 4% interest rate bracket recorded 16.4%. This is the highest level in 9 years and 3 months since March 2013 (27.2%). Until May, the 3% to under 4% bracket was only 0.4%, but its share surged sharply within a month.

What is the reason? A commercial bank official explained, "Right after the current government took office, criticism peaked that banks were making money from interest. They raised loan interest rates but did not increase deposit rates, widening the loan-deposit interest rate gap. When the loan-deposit interest rate gap disclosure system was introduced, commercial banks began to actively raise deposit interest rates starting in June."

Looking at the interest rate proportions of newly accumulated fixed deposits at banks, the share below 2% has significantly decreased, while the 2% to under 4% bracket has noticeably increased. Comparing one year ago (June last year vs. June this year), the difference is clear. Under 2% dropped from 99.9% to 27.5%, 2% to under 3% rose from 0.1% to 56.1%, and 3% to under 4% increased from 0% to 16.4%, completely reversing the trends in each bracket.

Around 4% Products Expected to Flood the Market by Year-End

This can also be seen by looking at fixed deposit accounts at commercial banks. Currently, Woori Bank's Woori First Transaction Preferential Fixed Deposit offers 3.60%, NH Nonghyup's Waltz Revolving Deposit offers 3.15?3.25%, Shinhan Bank's Beautiful Courage Deposit offers 1.8?3.4%, Hana Bank's Hana One Fixed Deposit offers 3.3%, and KB Kookmin Bank's KB Golden Life Pension Preferential Deposit offers 2.75%?2.95% interest rates.

As demand chasing higher interest rates pours in, the total fixed deposit balance of the five major domestic commercial banks exceeded 700 trillion KRW for the first time as of the end of July. It increased by 27.3532 trillion KRW in one month, more than five times the previous month's increase of 5.3191 trillion KRW.

Another bank official said, "The Bank of Korea announced plans to continue raising the base interest rate, and with the loan-deposit interest rate gap disclosure system starting this month, commercial banks have agreed to reflect market interest rate changes in deposit rates monthly." He predicted, "Deposit interest rates will continue to rise for the time being, and by the end of the year, fixed deposit products with interest rates approaching 4% will flood the market."