[Real Estate Finance] Interest Rate Hike Nears Peak... "Catch the Last Train for 5% Savings"

End of Interest Rate Hike, Deposit Interest Rate Competition Eases
5% Interest Rates Available at Internet, Regional, and Savings Banks
Check Preferential Conditions and Carefully Assess Default Risk

As competition for deposit products in the banking sector subsides, high-interest products are decreasing. With expectations that the domestic and international base interest rate hikes are nearing their end, and authorities urging banks to refrain from interest rate competition, analysts suggest that now is the right time to catch the 'last train' for high-interest fixed deposits. Although mutual finance institutions and savings banks offer relatively higher interest rates, caution is advised due to various past incidents.

According to the Bankers Association on the 11th, the highest interest rates for fixed deposit products at the five major commercial banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?were recorded at 3.98% to 4.60% as of the previous day. This contrasts with the atmosphere in the second half of last year when commercial banks competed to offer fixed deposits with interest rates in the 5% range. For example, KB Kookmin Bank's highest interest product, the 'KB star Fixed Deposit,' now offers a maximum preferential rate of 3.98%, with even 4% products disappearing.

The reason banks have halted the rally in deposit interest rates is due to improved funding conditions. With the resumption of bank bond issuance, the incentive to raise funds through deposits has diminished. As market interest rates stabilize, there is no longer a reason to promote high-interest special offers. According to the Korea Financial Investment Association, as of the 9th, the 1-year financial bond (unsecured, AAA) interest rate stood at 4.047%. This marks a drop of over 1 percentage point from the peak of 5.107% in early November last year, returning to levels seen in September last year.

'Last Train' Opportunity... Seek Remaining 5% Range Fixed Deposits

As this trend is expected to continue for the time being, more people are trying to catch the 'last train' for high-interest fixed deposit products. New accounts for 3-year fixed deposits at the four major commercial banks?KB Kookmin, Shinhan, Hana, and Woori?numbered 23,597 in December last year, nearly triple the 8,594 accounts in January last year. In October last year, the number even rose to 36,946 accounts. New subscriptions for 2-year fixed deposits also surged compared to January last year (18,445 accounts), with 32,864 accounts in October, 24,067 in November, and 22,276 in December. This indicates that preparations to catch the last train have been increasing since the fourth quarter of last year.

However, some commercial banks still offer products in the 5% range, though they are rare. According to the Bankers Association, the highest interest rates among commercial bank fixed deposit products are offered by BNK Busan Bank's 'The Special Fixed Deposit' and K Bank's 'CodeK Fixed Deposit,' both providing an annual interest rate of 5.00% (based on 12 months).

Turning to savings banks, many 5% range products remain. According to the Savings Banks Association, as of the previous day, products such as ▲SBI Savings Bank's 'Fixed Deposit,' ▲Sangsangin Savings Bank's 'BangBangBang Revolving Fixed Deposit,' ▲Kiwoom Savings Bank's 'Non-face-to-face Revolving Fixed Deposit,' and ▲Hanwha Savings Bank's 'e-Banking Fixed Deposit' offer up to 5.50% annual interest (based on 12 months).

As the 'last train' for high-interest deposit products at commercial banks departs, many financial consumers continue to pay attention to high-interest products from mutual finance institutions such as credit cooperatives, regional agricultural and fisheries cooperatives, and Saemaeul Geumgo.

These mutual finance institutions still maintain fixed deposit interest rates in the 5% range, with some special products reaching the high 5% to 6% range. According to the Bank of Korea, as of October last year, the deposit balances (average balance basis) of credit cooperatives, mutual finance, and Saemaeul Geumgo totaled 80.7228 trillion KRW, a 9.7% increase compared to a year earlier.

Various Incidents Occur... Points of Caution Regarding Soundness

However, recent incidents occurring in various places have caused concern among consumers. On the 14th of last month, some regional Nonghyup branches pleaded with customers to cancel high-interest special products, citing an inability to cover interest payments. On the 29th, a regional credit cooperative in Cheongju, Chungbuk, caused controversy by sending a notice about raising interest rates on fixed loan products. Although the Financial Supervisory Service intervened to resolve the situation, many consumers remain uneasy due to the frequency of such incidents.

Of course, deposits entrusted to mutual finance institutions are guaranteed up to 50 million KRW, including principal and interest, just like commercial banks. Under current law, each mutual finance institution separately establishes and operates a deposit protection fund. As of last year, Nonghyup held reserves of 4.9479 trillion KRW, Suhyup had 512.2 billion KRW, Saemaeul Geumgo had 2.3 trillion KRW, and credit cooperatives had reserves totaling 1.8133 trillion KRW.

Nevertheless, if concerns persist, consumers can refer to key management indicators of each institution. Representative indicators include the BIS capital adequacy ratio and the ratio of non-performing loans (NPLs). The former indicates the proportion of capital relative to risk-weighted assets, while the latter represents the proportion of bad loans overdue for more than three months. A higher BIS ratio and a lower NPL ratio indicate better soundness.

It is also necessary to carefully check preferential conditions. It is unwise to subscribe blindly based solely on the highest interest rate advertised by financial companies. One should first verify the actual benefits and expected interest rates, considering the likelihood of meeting preferential interest payment conditions, deposit amount, and deposit period. If it is difficult to understand the preferential interest payment conditions, actively request explanations from branch staff or call centers. Since early termination generally results in the loss of preferential interest benefits and the application of penalty rates, it is essential to carefully assess whether the funds can be maintained until maturity.

On the 9th, as major commercial banks lowered their fixed deposit interest rates from the 5% range to the 4% range, a digital signboard displaying fixed deposit interest rates was seen at the entrance of a bank in Seoul. Photo by Kang Jin-hyung aymsdream@