Financial Savvy Individuals Growing Increasingly Concerned About Interest Rate Peak Theory

"Deposits Still Yield Higher Returns... Consider Long-Term Products"

[Asia Economy Reporter Yoo Je-hoon] As the perception that deposit interest rates at banks, savings banks, and mutual finance sectors have peaked spreads, the 고민 (concerns) of the financial-savvy individuals who sought high-interest deposit products throughout the past year are deepening. Inside and outside the financial sector, it is advised that since the pace of deposit interest rate hikes is likely to slow down going forward, it is necessary to target long-term, high-interest financial products.

According to the Bank Federation on the 24th, the interest rates for 1-year fixed deposit products at the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) remain at 3.00~3.95% based on preferential interest rate application criteria. Considering that on the 17th, the 1-year fixed deposit interest rates at the five banks were at 3.78~4.10%, the lower end has dropped by 0.78 percentage points and the upper end by 0.15 percentage points in just one week.

Despite the Bank of Korea raising the base interest rate by 25bp (1bp=0.01%) on the 13th, the reason for the deposit interest rates moving in the opposite direction is attributed to the improved financial market conditions. The previously frozen bond market is showing signs of normalization, and with the resumption of bank bond issuance from the end of last year following the suspension caused by the Legoland incident last year, the financial sector's incentive to attract market funds through deposit competition is weakening.

This is also affecting deposits in the secondary financial sector. According to the Savings Banks Association, as of this day, the average interest rate for 1-year fixed deposit products at savings banks is 4.95%, breaking below the 5% mark. This is quite different from when the bond market squeeze led to deposit competition, pushing the upper limit of 1-year fixed deposit interest rates at savings banks above 6%.

As the deposit interest rate trend reverses, the 고민 (concerns) of the financial-savvy individuals deepen. Lee Young-chae (34, female), a worker in the metropolitan area, said, "I had planned to deposit my existing lump sum into a high-interest fixed deposit product when my New Year's bonus comes in, but the average interest rate has dropped by nearly 1 percentage point in the meantime," adding, "I am unsure whether it is better to deposit in relatively higher interest rate products now or to consider other investment products."

Especially, the fact that the securities and real estate markets have not yet shown a clear rebound adds to the confusion of these financial-savvy individuals.

Within the financial sector, since the market interest rate decline trend is likely to continue, long-term fixed deposits and fixed interest savings insurance products are suggested as alternatives. A representative from a commercial bank said, "Although fixed deposit interest rates will not rise rapidly, they can still be considered to have higher returns than securities and real estate markets," adding, "Considering that interest rates may stagnate or decline in the long term, it is worth considering fixed deposit products with maturities of three years or more or fixed interest savings insurance products."