[Practical Finance] Maturity Has Arrived... Yetechok Considering Switching Investments

All 5 Major Banks Offer Time Deposits in the 4% Range
Mutual Finance and Savings Banks Also See Rising Deposit Interest Rates

#Office worker Yujeonghwan (33) is currently considering how to manage the approximately 50 million KRW from a deposit product with an annual interest rate of up to 5.4%, which matured last October. Although not as high as last year, interest rates are gradually rising, with some commercial banks now offering products with annual rates in the 4% range. Yujeonghwan decided to reinvest the funds in a savings bank parking account offering an interest rate in the high 3% range for the time being and monitor the situation.

The strategic waiting game among investment-savvy individuals has begun. The maturity of deposit and savings products purchased around the peak of deposit interest rates in the second half of last year is now approaching. While financial institutions are gradually raising interest rates on deposit products to retain funds, there is also growing interest in parking accounts (demand deposit accounts) that offer relatively high interest rates to observe the interest rate trend.

According to the financial sector on the 18th, the one-year fixed deposit interest rates at the five major domestic commercial banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) surpassed 4%, reaching a maximum of 4.00~4.05% as of the previous day. At the beginning of last month, deposit interest rates were between 3.68~3.85% (as of September 4), so in about a month, the lower bound rose by 32 basis points (1bp=0.01%) and the upper bound by 20 basis points.

Specifically, Shinhan Bank's 'Solpyeonhan Fixed Deposit', Woori Bank's 'WON Plus Deposit', and NH Nonghyup Bank's 'NH All One e-Deposit' offer up to 4.05% annually, while KB Kookmin Bank's 'KB Star Fixed Deposit' and Hana Bank's 'Hana's Fixed Deposit' provide up to 4.00%. Some small and medium-sized banks offer even higher rates than these five major banks. SC First Bank's 'e-Green Save Deposit' offers the highest rate at 4.35%, followed by Jeonbuk Bank's JB 1 2 3 Fixed Deposit (4.20%), Sh Suhyup Bank's Hey Fixed Deposit (4.10%), and Jeju Bank's J Fixed Deposit (4.10%).

The rise in fixed deposit interest rates in the banking sector is due to the maturity of deposit products acquired when deposit rates peaked at the end of last year. In the fourth quarter of last year, influenced by the Legoland incident, financial institutions competed fiercely to attract deposits, with some of the five major banks offering interest rates in the 5% range.

Financial institutions are concerned because the volume of deposits acquired during the high-interest period last year is substantial. According to the Bank of Korea and others, the increase in deposits in the financial sector from October last year to January this year was approximately 96.25 trillion KRW, close to 100 trillion KRW. Considering that fixed deposits are often subscribed for 12-month terms, a significant portion of these deposits is now maturing.

Competition for deposits is even more active in the secondary financial sector, including credit cooperatives, agricultural and fisheries cooperatives, Saemaeul Geumgo (community credit cooperatives), and savings banks. For example, Daejeon Munchang Credit Union offers a fixed deposit product with a maximum annual interest rate of 5.00% for a 12-month term, while Seoul Happiness Credit Union (4.95%) and Seoul Deunsol Credit Union (4.75%) also offer higher deposit products compared to banks. Savings products offer even higher interest rates. Pyeongtaek Seongdong Credit Union in Gyeonggi Province is conducting a special savings promotion with a maximum annual interest rate of 6.30% for up to 10 billion KRW.

Savings banks are also gradually raising deposit interest rates to prevent deposit outflows. As of the previous day, the average fixed deposit interest rate (12-month term) at savings banks nationwide was 4.24%, up 0.13 percentage points from early last month (4.11%). CK, Must Samil, and Dongyang Savings Banks offer fixed deposit products with annual interest rates up to 4.60%, and many others provide rates between 4.50% and 4.55%.

A financial sector official explained, "Since the secondary financial sector has limited alternative funding sources besides deposits, they tend to be more aggressive in interest rate competition compared to banks even under normal circumstances," adding, "The recent bank run crisis at Saemaeul Geumgo also had an impact."

Many investment-savvy individuals are choosing to observe the trend a bit longer. Since market interest rates are on an upward trend, they believe deposit interest rates have not yet peaked. This has renewed attention on parking accounts offered by various financial institutions. Last month alone, demand deposits exceeding 10 trillion KRW flowed into the five major commercial banks.

OK Savings Bank's parking account product, OK Eutbaekman Account II, offers up to 5% annual interest. Specifically, it provides up to 5% for balances up to 1 million KRW, up to 4% for balances between 1 million and 5 million KRW, and 3.5% for balances exceeding 5 million KRW. Some products offer high interest rates even for large deposits. NH Savings Bank applies up to 3.8% annually on balances up to 100 million KRW in its 'NH FIC-One Demand Deposit', and SBI Savings Bank offers 3.5% annually on balances up to 100 million KRW in its 'Cider Bank Demand Deposit'.

However, authorities are cautious that this trend could lead to excessive competition for deposits. The financial authorities recently abolished the issuance limit on bank bonds by commercial banks, intending to ease pressure on deposit competition by allowing freer issuance of bank bonds. The industry also believes that unless bond market tightness recurs, deposit competition exceeding 5-6% like last year is unlikely.

A commercial bank official said, "With the expectation of prolonged high interest rates and rising market interest rates due to international situations, deposit interest rates are likely to continue rising for some time," adding, "During such periods of rising deposit rates, it is worth considering shortening the maturity of deposit products or using parking accounts as a bridge."