[Practical Finance] Earn 3.7% Annual Interest by Depositing in CMA for Just One Day

Stock Market Slump Increases Balance to 62.109 Trillion KRW
Interest Rates Vary by Product Type and Reference Date, Verification Needed

As the domestic stock market shows sluggish performance, the number of investors choosing to hold cash is increasing. Accordingly, interest in Cash Management Accounts (CMA) is growing, as they guarantee high interest even for just one day of deposit.

According to the Korea Financial Investment Association on the 21st, the latest data as of the 17th of this month shows that the CMA balance totaled 62.109 trillion KRW. At the end of last year, the balance was only 57.5036 trillion KRW, but it has steadily increased every month since then. On the 27th of last month and the 7th of this month, the balance exceeded 60 trillion KRW and 61 trillion KRW, respectively.

The total number of CMA accounts showed a similar trend to the balance amount. At the end of last year, there were 35,912,944 accounts, which surpassed 36 million on January 25th and increased to 36,297,794 accounts as of the 17th of this month.

The popularity of CMA among investors is due to securities firms offering high interest rates. With the domestic base interest rate rising to 3.50%, securities firms are also raising CMA interest rates to attract customers. Additionally, it is analyzed that CMAs are being used as a measure to prevent investor withdrawal during the stock market downturn.

CMA allows interest to be earned even if deposited for just one day. It is called a securities firm's "on-demand deposit account (parking account)." The term "parking account" combines "parking" and "account," meaning an account where money can be deposited and withdrawn anytime, like temporarily parking a car. Since there are no restrictions on deposit periods or the number of transactions, it is popular among those seeking high interest.

When categorizing CMA balances by investment type, they are divided into Money Market Fund (MMF) type, Repurchase Agreement (RP) type, Issued Promissory Note type, and others. Among CMA balances, the RP type accounted for the largest portion at about 39.25%. This was followed by others at 35.51%, issued promissory notes at 21.27%, and MMF type at 3.96%.

As of the 21st, the RP type service provided by Mirae Asset Securities guarantees a pre-tax maximum annual yield of 3.55%. SK Securities offers 3.50%. The issued promissory note type guarantees even higher yields: Korea Investment & Securities at 3.75%, NH Investment & Securities and Mirae Asset Securities at 3.70%, and KB Securities at 3.65%. Issued promissory notes are short-term financial products issued within one year using the issuer's own credit. Securities firms raise funds through issued promissory notes, invest them in stocks and bonds, and return profits to customers. Only large securities firms with over 4 trillion KRW in equity capital can handle them. Securities firms that find it difficult to handle issued promissory notes provide interest through RPs.

CMA is especially popular among individual investors. As of the 17th of this month, individual investors' account balances accounted for 82.66% of the total 62.109 trillion KRW, amounting to approximately 51.3401 trillion KRW. Furthermore, individual investors hold the overwhelming majority of accounts. Out of 36,297,794 accounts, 99.59%, or 36,150,623 accounts, are held by individuals.

The reason individual investors are interested in CMA is interpreted as an increase in cash holdings due to the challenging stock market situation. Kang Song-cheol, a researcher at Eugene Investment & Securities, said, "In a situation where interest rates are not low and with events like the bankruptcy of the U.S. Silicon Valley Bank (SVB), investors find it difficult to invest in stocks or bonds, so CMA is a decent investment option. However, if the perception spreads that interest rates are unlikely to rise further, investors may reduce their cash holdings, and funds could move to other risk assets instead of CMA."

A representative from Hana Securities said, "With rising interest rates, CMA yields have also increased, leading to significant inflows of funds. The availability of other services such as salary transfer functions and utility bill payments also seems to have influenced the growing interest in CMA."

Han Su-gil, head of the WM Products Department at KB Securities, said, "CMA automatically invests funds upon deposit without the need for separate purchase orders, making it useful as standby funds for stock purchases. One investment product can be applied per account, and by opening separate accounts, all types of CMA can be accessed." He added, "Interest rates vary by product type and reference date, so checking the interest rates by product type before depositing is advantageous for returns. The issued promissory note type reinvests daily and distributes profits, and compared to other types, it has a shorter reinvestment period, making it a useful product during rising interest rate periods."