Internet Banks at 4% 'Janggun', Savings Banks at 5% 'Meonggun'... Intense Competition Among Parking Accounts

OK Savings Bank Launches Deposit-Withdrawal Account Offering Up to 5% Annual Interest Rate

[Asia Economy Reporter Yoo Je-hoon] Jae-young Lee (35), an office worker living in the Seoul metropolitan area, recently withdrew 10 million KRW from a savings bank’s demand deposit account (parking account) and transferred it to a parking account at an internet-only bank. There was about 40 million KRW in the demand deposit account, but after hearing that an annual interest rate of 4% would be paid if the balance exceeded 50 million KRW, he topped up the shortfall. He said, "It’s similar to the interest rates of most installment savings products," adding, "Although the amount exceeds the deposit insurance limit (50 million KRW), it should be relatively stable since it’s a first-tier bank."

Interest rate competition for parking accounts between internet-only banks and savings banks is heating up. Amid the ongoing 'reverse money move' phenomenon where market funds flow into banks during an interest rate hike period, fierce competition for short-term fund attraction is taking place. As some internet-only banks offer parking accounts with interest rates in the 4% range, comparable to installment savings products, a savings bank has even introduced products with interest rates in the 5% range, continuing the 'general versus general' competition.

According to the financial sector on the 27th, OK Savings Bank launched the 'OK Eut Baekman Account II,' a demand deposit account offering an annual interest rate of 5%, the day before. This product provides a base interest rate of 4.5% per annum, with an additional preferential interest rate of 0.5 percentage points if open banking is registered, offering up to 5% annual interest on deposits up to 5 million KRW. For deposits exceeding 5 million KRW and up to 50 million KRW, a maximum annual interest rate of 4% is applied. Additionally, OK Savings Bank raised the interest rate on its existing product, the 'OK Second Account,' to a maximum of 4% per annum (with open banking registration) for balances up to 50 million KRW.

Prior to this, internet-only banks also competitively raised parking account interest rates. K Bank applies an interest rate of 3.0% per annum on deposits up to 300 million KRW, while Toss Bank offers 4.0% per annum on amounts exceeding 50 million KRW. According to the Bank of Korea, as of October, the weighted average deposit interest rate of deposit banks was 4.49%, and that of savings banks was 5.22%. Parking account interest rates have risen to levels comparable to regular deposit rates at banks and savings banks.

The parking account interest rate competition was triggered at the end of last year when Toss Bank applied a 2.0% annual interest rate on amounts up to 50 million KRW. Especially this year, parking account interest rates have shown a 'general versus general' style upward trend throughout the year, following a sharp rise in the base interest rate and a downturn in asset markets such as stocks and real estate. This is due to the rapid inflow of idle funds in demand deposits into fixed deposits. As of the end of last month, the fixed deposit balance of the five major commercial banks (KB Kookmin, Shinhan, Woori, Hana, NH Nonghyup) increased by 19.071 trillion KRW from the previous month to 827.2986 trillion KRW, while demand deposits decreased by 18.5686 trillion KRW to 623.2405 trillion KRW.

Typically, parking accounts are used to hold funds waiting for investment and offer interest rates around 0.1% to 1.0%. Due to banks’ nature of securing profits from the interest rate spread between deposits and loans, they can raise funds at low cost and are classified as 'core deposits.' While financial authorities have put brakes on raising fixed deposit interest rates, internet-only banks and savings banks, which urgently need to secure deposit balances for mid-interest loans and maintaining soundness, have no choice but to focus on attracting funds by raising parking account interest rates.

A financial industry official said, "Unlike commercial banks with demand deposits amounting to hundreds of trillions of KRW, internet-only banks and savings banks, which are relatively smaller in scale, may bear less burden from raising parking account interest rates," adding, "Since they are considering future initial public offerings (IPOs), there may also be effects related to increasing their size."

As the era of a 3% base interest rate opens for the first time in 10 years, commercial banks are raising deposit interest rates one after another, bringing bank fixed deposit rates close to 5% per annum. On the 26th, a banner displaying fixed installment savings interest rates was posted at a commercial bank in Seoul. Photo by Jinhyung Kang aymsdream@