[Practical Finance] How Far Have You Tried... Focus on Short-Term Deposits and Flexible Savings Accounts

With the emergence of high-interest savings and deposit products in the financial sector, the "Yetech" (Savings + Investment) crowd has become active again. Recently, more Yetech enthusiasts have adopted a strategy of "holding the bat short." This seems to reflect expectations that deposit interest rates will rise further in the future. As the maturity dates of high-interest products introduced last year approach, banks have been competing to attract deposits, resulting in over 13 trillion KRW flowing into time deposits at the five major banks last month.

Yetech Enthusiasts Managing Short-term Savings and Deposits

According to the financial sector on the 8th, as of the end of October, the balance of time deposits at the five major commercial banks (KB Kookmin, Shinhan, Woori, Hana, NH Nonghyup) increased by approximately 13.6835 trillion KRW from the previous month, reaching 855.9742 trillion KRW. The balance of installment savings rose by 841.4 billion KRW to 44.3702 trillion KRW. The total deposit balance of the five major banks stood at 1,969.7187 trillion KRW at the end of October, up 31.4569 trillion KRW from the previous month.

This reverse money movement phenomenon is interpreted as being due to the recent stagnation in the stock and real estate markets combined with rising deposit interest rates. Recently, there has been an increase in Yetech enthusiasts choosing short-term deposits with maturities of six months or less, drawing attention. In particular, some banks and savings banks have launched short-term deposit products with higher interest rates than one-year time deposits, leading more Yetech enthusiasts to shorten maturity structures to maximize interest income. According to the Bank of Korea's statistics system, the interest rates on time deposits with maturities between six months and less than one year (based on new contracts) have steadily risen: 3.72% in July, 3.73% in August, and 3.95% in September. A financial sector official said, "Customers seem to expect interest rates to rise further, so they put money into six-month products with slightly higher rates and plan to reinvest upon maturity."

In fact, looking at banks' deposit products, all five major banks' six-month maturity deposit products recorded interest rates in the 4% range. According to the bank association's disclosure as of the previous day, NH Nonghyup Bank's 'NH All One e-Deposit,' Shinhan Bank's 'Solpyeonhan Time Deposit,' and Hana Bank's 'Hana One Time Deposit' offer a maximum annual interest rate of 4.05%. Woori Bank's 'WON Plus Deposit' offers up to 4.02% annually, and KB Kookmin Bank's 'KB Star Time Deposit' offers up to 4%. Notably, KB Kookmin Bank's one-year maturity rate for the same product is 3.95%, meaning the short-term deposit product's rate is actually 0.05 percentage points higher.

Attention on Short-term Installment Savings and Flexible Installment Savings

Flexible installment savings, which allow more flexible fund management than time deposits while still benefiting from high interest rates, are also gaining attention. Unlike time deposits, which require locking in a certain amount for a fixed period, flexible installment savings allow deposits to be made freely within a deposit limit whenever desired. There are no fixed deposit dates or limits on the number of deposits. Maturities can be set as long as three years, so one can join with a minimum amount in the first month and make deposits gradually.

Flexible installment savings are especially advantageous when interest rates fall. Because additional deposits are possible and fixed interest rates apply, even if new rates drop, existing rate benefits remain. For example, Mr. A, who joined a flexible installment savings account with a 6.3% annual rate last year, has started making deposits this year when rates fell, thus fully enjoying the high-interest benefits.

A financial sector official said, "Time deposits do not allow additional deposits, so a new account must be opened at maturity, which can lead to interest rate losses if new rates have dropped. If time deposit and flexible installment savings rates are similar, flexible installment savings can be advantageous when rates decline."

In the secondary financial sector, high-interest flexible installment savings products are currently offered. Daebang Credit Union's 'Lady For You (4U) Savings' offers 6% annual interest (including preferential rates), allowing monthly deposits up to 1 million KRW, targeting women aged 20 to 39. Eunpyeong Saemaeul Geumgo's flexible installment savings offer up to 5% annual interest, and Imun Hwikyungdong Saemaeul Geumgo's flexible installment savings offer 4.8% annually (non-face-to-face basis), matching time deposit rates. These also have a monthly deposit limit of 1 million KRW.

The primary financial sector is also joining in. K Bank's 'Main Transaction Preferential Flexible Installment Savings' offers up to 4.85% annually, and Kakao Bank's flexible installment savings provide up to 4% annually with a monthly limit of 3 million KRW, similar to the time deposit rate (3.9% annually). If automatic renewal (up to five times) is set at maturity, the principal and interest are reinvested as principal, allowing compound interest benefits. Shinhyup Bank's 'Sh Supporting Youth in Fishing Villages (海)' offers up to 6% annually and allows deposits from 10,000 KRW up to 800,000 KRW, targeting fishery workers under 60 years old or high school and university students in fisheries-related fields.

When subscribing to flexible installment savings, it is important to check the allowable deposit amounts by period. For example, in Saemaeul Geumgo's flexible installment savings, during the last quarter before maturity, deposits are limited to within 50% of the total amount previously deposited. For instance, if one subscribes for 12 months and deposits 10 million KRW over 9 months, only up to 5 million KRW can be deposited during the remaining 3 months.