Deposit rates are over 5%, but subscription savings accounts remain at 1.8% for years... Legal amendment underway

Rep. Kim Byung-wook Proposes Bill Linking Subscription Savings Interest Rate to Base Rate
Current Subscription Savings Interest Rate Only 1.8% Annually After 2 Years of Enrollment... Base Rate Currently 3.0%
Explicit Consideration of Base Rate in Subscription Savings Interest Calculation

[Asia Economy Reporter Oh Ju-yeon] While bank deposit interest rates have reached the high 5% range, the interest rate on housing subscription savings has remained at 1.8% for over six years. In response to calls for 'interest rate normalization,' a bill has been proposed in the National Assembly to link the subscription savings interest rate to the base rate.

Kim Byung-wook, Head of the Functional Headquarters of the Democratic Party of Korea's Presidential Campaign Committee. / Photo by Yoon Dong-joo doso7@

On the 19th, Kim Byung-wook, a member of the Democratic Party of Korea, introduced the "Partial Amendment to the Housing Act," which stipulates that the interest rate on the Housing Subscription Comprehensive Savings (occupant savings) should be calculated by considering the Bank of Korea base rate and the average deposit interest rate of commercial banks.

The interest rate on subscription savings is determined according to the Ministry of Land, Infrastructure and Transport’s notice titled "Interest Rates in Case of Termination of Housing Subscription Comprehensive Savings." Currently, it is set at 0% within one month of subscription, 1.0% for over one month to less than one year, 1.5% for over one year to less than two years, and 1.8% for over two years. This has been in effect since August 12, 2016.

However, considering that as of October this year, the Bank of Korea base rate is 3.0% and the interest rates on installment savings products at commercial banks exceed 4% annually, there are many criticisms that the subscription savings interest rate is too low.

The amendment to the Housing Act proposed by Representative Kim requires that the subscription savings interest rate be calculated by taking into account the base rate and commercial bank deposit rates, and it also includes provisions to elevate the existing Ministry of Land, Infrastructure and Transport notice to the level of law.

If this bill passes, it is expected to establish an institutional foundation that allows the subscription savings interest rate to rise alongside the base rate during periods of rate hikes, thereby alleviating the relative deprivation felt by citizens holding subscription savings.

According to data from the Ministry of Land, Infrastructure and Transport, as of June, the cumulative number of subscribers to the Housing Subscription Comprehensive Savings was 27,428,074. This means that 53.2% of the total population (51,578,178) hold subscription savings.

Representative Kim said, "Since subscription savings are effectively a 'national savings,' the interest rate must rise at least in line with the base rate increase to ease the relative deprivation felt by citizens holding subscription savings," adding, "It is necessary for the bill considering and calculating the subscription savings interest rate based on the base rate to be passed."