Declining Deposit Interest Rates Due to Market Rate Cuts
Investment Sentiment Shifts to CMA as Deposits Lose Appeal
The interest rates on demand deposit accounts (commonly known as ‘parking accounts’) have dropped to the 2-3% range. This is due to the decline in market interest rates, leading various financial institutions, including internet-only banks, to lower the interest rates on parking accounts. As a result, the increased idle funds in the market are turning their attention to Cash Management Accounts (CMAs), which offer relatively higher interest rates in the high 3% range.
According to the financial sector on the 17th, the interest rates on demand deposit accounts at the three major domestic internet-only banks (Kakao Bank, K Bank, and Toss Bank) have mostly fallen to the 2% range.
The interest rate on Toss Bank’s deposit and withdrawal account (for balances under 50 million KRW), which sparked the parking account boom, has returned to 2.0%, down 0.2 percentage points. Toss Bank pays an interest rate of 3.6% per annum for deposits over 50 million KRW, but this is also down 0.4 percentage points from the previous 4.0%.
Additionally, K Bank’s ‘Plus Box,’ which offered a 3.0% annual interest rate regardless of the amount up to 300 million KRW, has decreased by 0.3 percentage points from 3.0% to 2.7%. Kakao Bank’s Safe Box also offers an interest rate of 2.6% per annum.
Although the interest rates on demand deposit accounts at savings banks are relatively better, they are also on a downward trend. SBI Savings Bank, the industry leader, recently lowered the interest rate on Cider Bank’s demand deposit account from 3.0% to 2.8%, a 0.2 percentage point drop. OK Savings Bank’s OK Eut Million Account II also barely maintained the 3% range, with an interest rate of 3.0% per annum (excluding preferential rates) for balances between 5 million KRW and 20 million KRW, down 0.3 percentage points.
As the interest rates on parking accounts at banks and savings banks lose their relative appeal, the dilemma for savers looking to invest idle funds is growing. This comes amid a situation where the demand deposit balances at the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup) increased by 10.1116 trillion KRW in one month to 619.265 trillion KRW as of the end of last month, despite recent declines in deposit interest rates.
Recently, savers have been paying attention to securities firms’ CMAs, which offer returns in the mid-to-high 3% range. The yield on issuance note-type CMAs is 3.75% at Korea Investment & Securities, 3.70% at Mirae Asset Securities, and 3.65% at KB Securities, far surpassing the interest rates on parking accounts at banks and savings banks. The yield on repurchase agreement (RP)-type CMAs is also relatively high, with Mirae Asset Securities at 3.55%, SK Securities’ Happiness Sharing at 3.50%, Daol Investment & Securities at 3.45%, and IBK Investment & Securities at 3.40%.
CMAs are products where securities firms or comprehensive financial companies receive deposits from investors and invest in highly stable financial products such as government bonds and repurchase agreements to generate returns. They are popular because, like bank parking accounts, they allow for frequent deposits and withdrawals. Except for comprehensive finance types, they are not covered by deposit insurance, but since the risk of principal loss is minimal, they are considered relatively stable investment options.
According to the Korea Financial Investment Association, as of the 13th, the balance of CMA accounts at securities firms was 65.5269 trillion KRW. This represents a 12.7% (7.3918 trillion KRW) increase compared to the beginning of the year (58.1351 trillion KRW). The number of accounts also rose by 1.48% (530,000 accounts) to 36.44 million.
In particular, issuance note-type CMAs have recently gained popularity. Issuance notes are short-term financial products with maturities within one year, issued by securities firms that have received short-term finance business licenses and have capital exceeding 4 trillion KRW, based on their own credit for fundraising. In Korea, Mirae Asset Securities, Korea Investment & Securities, NH Investment & Securities, and KB Securities are the four firms authorized to issue these notes.
During the same period, the balance of issuance note-type CMAs increased by 94.0%, from 12.096 trillion KRW to 23.469 trillion KRW. This far exceeds the overall CMA balance growth rate of 12.7%. A financial industry official said, “With the Bank of Korea’s base rate freeze and growing expectations for easing by the U.S. Federal Reserve, the attractiveness of deposit products is gradually diminishing,” adding, “Since it is also easy to transfer funds to stock trading accounts for investment, more depositors are paying attention to this trend.”
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