Commercial Banks' Fixed Deposit Interest Rates Fall Uniformly to the 3% Range

Pressure from Financial Authorities Leads to Decline in Bank Bond Yields
Some Savings Products Increase Interest Rates

[Image source=Yonhap News]

[Asia Economy Reporter Sim Nayoung] The interest rates on regular savings accounts at major banks have fallen to the 3% range. According to the financial sector on the 24th, just before the Lunar New Year holiday began on the 20th, Hana Bank's 'Hana Regular Savings' interest rate was adjusted from the 4% range to 3.95%. The representative regular savings products of the five major banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) all dropped to the 3% range (3.67?3.95%).

One-year term regular savings rates are mainly set by reflecting the one-year bank bond rates. When bond yields fall, it means banks can gather loanable funds at lower market funding costs. Therefore, banks no longer need to raise interest rates to attract more deposits. On the 9th, the one-year bank bond (AAA) yield was 4.042%, but it dropped to 3.780% on the 20th. As the one-year bank bond yield fell over ten days, deposit rates should similarly decrease by a comparable margin.

Another major reason banks lowered regular savings rates is that last November, when deposit rates exceeded 5% due to liquidity tightening, financial authorities pressured banks to refrain from raising deposit rates further.

Looking at the one-year term interest rates for major bank products (based on the highest preferential rate), Hana Regular Savings is at 3.95% (Hana Bank), Solpyeonhan Regular Savings at 3.90% (Shinhan Bank), WON Plus Savings at 3.87% (Woori Bank), KB Star Regular Savings at 3.86% (KB Kookmin Bank), and NH All One e-Savings at 3.67% (Nonghyup Bank), in that order.

Savings banks' regular savings rates have also declined. As of the same date, the average 12-month regular savings rate at savings banks was 4.97%, down 0.56 percentage points from the end of last November (annual 5.53%).

Some banks are raising installment savings rates. Shinhan Bank raised the rates on 11 installment savings products and 2 deposit products on the 19th. The 'Shinhan Al.Ssol Installment Savings' rate was increased by 0.20 percentage points (highest 4.45% → 4.65% for 12 months), and the 'Shinhan Franchise Swing Installment Savings' was raised by 0.20 percentage points (highest 4.5% → 4.7% for 12 months). KakaoBank also raised the base interest rate on its free installment savings products by up to 0.3 percentage points starting the 20th.

A Shinhan Bank official said, "We adjusted some deposit and installment savings rates upward to sufficiently reflect the base rate and market rate increases as of the end of last year."