[Preference for Short-Term Deposits] ② Banks Also Offer a Basic 4%... High Interest Rates Draw Attention Amid Reinvestment Rush

As the 're-deposit war' among financial institutions begins, banks and mutual finance institutions are offering deposit products with interest rates in the 4% range. Amid this, some institutions are experiencing an 'inversion' phenomenon where the interest rates on 6-month maturity deposit products surpass those of deposits with maturities over 12 months, increasing the popularity of short-term deposit products.

According to the Bankers Association disclosure on the 1st, the average interest rate for 12-month fixed deposit products at the four major commercial banks (KB Kookmin, Shinhan, Hana, Woori) exceeded 4%, ranging from 4.00% to 4.05% as of the previous day. Compared to the average rates in early September two months ago (3.68% to 3.85%), the lower bound rose by 32 basis points (1bp=0.01%) and the upper bound by 20 basis points.

The savings bank sector shows a similar trend. As of the previous day, the average interest rate across 79 nationwide savings banks was 4.12%, up 1bp from early September. The average rate for savings banks even rose to 4.24% in mid-last month. Interest rates in the 4% mid-to-high range have become common in agricultural and fisheries cooperatives, credit cooperatives, and Saemaeul Geumgo as well.

The reason each sector is striving to expand deposits is that about 100 trillion KRW of deposits that flowed into financial institutions during last year's bond market crunch are now maturing. Although deposit products offering 5% at commercial banks and 6% in the secondary financial sector are not flooding the market as they did last year, a cautious competition among financial institutions to maintain deposit balances is underway. The rising market interest rates, including those on bank bonds, are also a major contributing factor.

Meanwhile, some financial institutions are witnessing an inversion phenomenon where interest rates on short-term deposit products with maturities of 6 months or less exceed those of 12-month maturity products. For example, Jeonju Seongsan Credit Cooperative offers up to 4.70% annual interest on its Union Fixed Deposit product when subscribed to non-face-to-face for a 6-month maturity, which is 50 basis points higher than the highest rate for the 12-month maturity product (4.20%).

A similar phenomenon is occurring at commercial banks. KB Kookmin Bank’s representative deposit product, 'KB Star Fixed Deposit,' offers a maximum annual interest rate of 4.08% for the 6-month maturity product, which is 3 basis points higher than the highest rate for the 12-month maturity product (4.05%). NH Nonghyup Bank’s All One e-Deposit also offers up to 4.05% for deposits between 6 months and less than 12 months, which is 10 basis points higher than the highest rate for deposits between 12 months and less than 24 months (3.95%).

Although of a slightly different nature, Kakao Bank’s recently launched 'One Month Savings' product offers an 8% interest rate, significantly exceeding the 4.00% highest rate for 12-month maturity in existing flexible savings products. A representative from a commercial bank said, "Although not at last year's level, the competition for deposits has led to a convergence of interests between depositors seeking higher rates and financial institutions aiming to reduce risk through maturity diversification."