"Savings and Deposit Interest Rates, How High Will They Go?"

Proportion of Fixed Deposits with Interest Rates in the 3% Range Hits 10-Year High
Banks Criticized for Interest Profits Ahead of Loan-Deposit Rate Spread Disclosure
Deposit Interest Rates Begin to Rise Significantly

[Asia Economy Reporter Shim Nayoung] "After diligently saving monthly for two years and investing in stocks, I ended up with a whopping '-54%' return in just one year." Ms. Shin Ji-ae (41, female), who withdrew 9 million KRW from her savings at the end of June last year and invested it all in Kakao stocks, is now grinding her teeth. "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," she said. The fixed deposit interest rate she checked at commercial banks is slightly above 3%. She added, "These days, sharing information about banks with high savings interest rates in friends' group chats is a daily routine."

The proportion of funds in fixed deposits receiving 'interest rates in the 3% range' has increased to the highest level in over a decade. This is why, in an era of tightening, attention is shifting from the stock market to banks. 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 3-4% 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 3-4% bracket was only 0.4%, but its proportion surged sharply within a month.

Why did fixed deposits with 3% interest suddenly increase? 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 margin. When the loan-deposit interest margin disclosure system was introduced, commercial banks began to actively raise deposit interest rates starting in June."

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@

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

Examining fixed deposit accounts at commercial banks confirms this. 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 surged, 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 margin 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."