[Interest Rate Response Strategy] ③ 'Again' Money Move or 'Despite Dislike' Deposit?

High Interest Rate Deposits Still Dominant... Future Strategies Diverge

[Asia Economy Reporter Yu Je-hoon] As the perception that market interest rates have peaked spreads, financial consumers who were searching for deposit products offering even 0.1 percentage points more interest until last year are facing increasing difficulties. Although many investors are currently focusing on long-term, high-interest deposit products to catch the 'last train' of the interest rate hike amid rapidly changing market conditions, opinions on future trends are divided between optimism and caution.

Deposit Interest Rates Fall Below 4%

According to the Bankers Association disclosure on the 26th, the top interest rates for the main 1-year fixed deposit products of the four major commercial banks (KB Kookmin, Shinhan, Hana, Woori) were recorded at 3.68% to 3.95%. This marks a sharp decline from the 5% range seen in November last year and the 4% range maintained until recently.

The sharp drop in deposit interest rates is due to financial authorities pressuring financial institutions to restrain deposit competition to curb rising loan rates, and improved funding conditions in the financial sector due to the resumption of bank bond issuance. The financial sector expects deposit interest rates to stabilize downward for the time being. A representative from a commercial bank said, "Expectations are growing that inflation has peaked and will decline, and this situation is affecting market interest rates," adding, "Deposit interest rates are also expected to continue a downward stabilization trend for the time being."

Because of this, unlike last year, expectations for investment assets such as securities seem to be increasing recently. The expected inflation rate in the U.S. dropped to 5.0% in December last year, and with the easing of the strong dollar trend, emerging market stock markets are being revived. This trend is especially pronounced as China lifts its extensive COVID-19 pandemic lockdowns and begins reopening, while also launching large-scale economic stimulus measures.

However, a clear money movement phenomenon has not yet appeared. According to the Korea Financial Investment Association, as of the 19th, investor deposits amounted to 44.1599 trillion won, down 4.9% from the end of last year and 17.9% compared to a year ago. The real estate market also shows little sign of revival despite various regulatory relaxations by authorities.

"Still Interested in High-Interest Deposit Products"... Optimism and Caution Intersect on Future Investment Strategies

Kwon Seong-jeong, head of the PB Center at Hana Bank’s Sales Division 1, said, "It depends on individual investment preferences, but many asset owners believe the stock market has not yet bottomed out as corporate earnings announcements are still pending," adding, "Regarding the real estate market, many clients have entered a watchful mode, considering the possibility that landlords who have endured high interest rates might flood the market with properties after the second quarter of this year."

Frontline private bankers (PBs) report that many asset owners are still trying to benefit from the 'last wave' of deposit interest rate hikes. Long-term investment products such as fixed-rate pension and savings insurance products, 1-year fixed deposits, and low-coupon bonds that were popular last year remain in demand. Kim Kang-tae, team leader at KB Kookmin Bank’s Yangjae PB Center, explained, "Although some investors are considering other investment options as deposit interest rates have started to decline, the trend is not yet significant," adding, "Many clients are still interested in 1-year fixed deposits, which offer higher rates compared to 2-3 year terms, or fixed-rate pension and savings insurance products offering interest rates in the high 4% range."

Opinions on future trends are divided between optimism and caution. Some expect that since the interest rate peak has passed, there will be a 'gradual' expansion of investments into overseas technology stocks, emerging market funds, exchange-traded funds (ETFs), and bond funds while monitoring market conditions. A commercial bank official noted, "Recently, many demand deposit accounts offer interest rates around 2-3%, so some asset owners are depositing surplus funds there while looking for investment opportunities in securities and real estate," adding, "We expect demand deposits to increase and fixed deposits to decrease for the time being."

There are also opinions to observe the market situation a bit longer. Heo Do-kyung, PB team leader at Shinhan Bank’s Mokdong PWM Center, said, "It is necessary to pay attention to three variables: the impact of China’s reopening, the direction of the U.S. housing market, and the Federal Open Market Committee (FOMC) results in February," adding, "Rather than hastily expanding investments, it is appropriate to respond according to the situation after the second quarter."