[AlDonSseulJap] US Interest Rate Cut After Holidays... Which High-Interest Products Should You Invest in Now?

Editor's NoteAlways Done Sseulful Japhak Encyclopedia. 'Aldon Sseuljap' will serve you only the truly 'money'-making information from countless economic articles.

The United States has finally hinted at a rate cut.

The US had effectively maintained near-zero interest rates but raised the benchmark rate 11 times up to 5.5% since January 2022, starting with a 0.25% hike, to fight inflation.

Then, on the 24th of last month, Jerome Powell, Chair of the US Federal Reserve (Fed), officially announced a rate cut in September at the 'Jackson Hole Meeting' held in Wyoming, USA.

Since US rate cuts significantly impact the global economy, the Bank of Korea, which determines our country's interest rates, cannot be free from this influence.

What impact will the US rate cut have on South Korea and, furthermore, on my assets?

Let's look into which financial products we should focus on in preparation for the rate cut.

[Image source=Yonhap News]

The Approaching Time of Rate Cuts

Jerome Powell, Chair of the US Fed, often called the 'President of the Global Economy.'

Simply put, the US Fed plays a role similar to that of the Bank of Korea in our country.

Jerome Powell is the head of that Fed.

Every word he utters has a profound impact on the global economy, so the world always pays close attention to his statements.

The Jackson Hole Meeting is a gathering of central bankers and economists worldwide, where remarks that can shake the global economy sometimes emerge.

This Jackson Hole Meeting drew even more attention as it was held just two months before the US presidential election.

At this meeting, Chair Powell stated, "The time has come for policy to adjust," officially signaling a major turning point in interest rate policy.

Following Powell's remarks, the likelihood of a rate cut at the Federal Open Market Committee (FOMC) meeting on the 17th-18th has increased.

'Big Cut' vs 'Baby Cut'

With the US rate cut becoming a foregone conclusion, attention is also focused on the magnitude and speed of the cut.

Currently, the market is fiercely debating whether the rate cut will be a 'Big Cut' (50bp = 0.5 percentage points) or a 'Baby Cut' (25bp = 0.25 percentage points).

As employment indicators, which gauge the US economic recession level, show cooling signals, the market is somewhat favoring the possibility of a 'Big Cut.'

In August, employment increased by 142,000, falling short of the Dow Jones experts' average forecast of 161,000.

According to the CME Group's FedWatch tool, traders are split on the Fed's rate cut outlook, with about 30% expecting a 'Baby Cut' and 70% expecting a 'Big Cut.'

Which Assets Should You Hold During a Rate Cut?

[Image source=Yonhap News]

So, which assets are advantageous to hold during a rate cut?

According to the securities finance industry, bonds generally recorded favorable returns during past rate cut phases, while stock performance was mixed.

Researcher Jae-seok Ha from NH Investment & Securities analyzed, "Rate cuts generally benefit bond prices regardless of whether there is a recession. Meanwhile, gold and the dollar show no correlation with rate cuts. Among alternative investments, REITs tend to rise in price just before a rate cut due to expectations but tend to fall if a recession accompanies the rate cut."

NH Investment & Securities gave a 'neutral' rating for stocks in the US, Japan, Europe, Korea, and other emerging markets. For alternative investments, they recommended 'overweight' positions in industrial metals, precious metals, global REITs, and the dollar. Energy, agricultural products, and cryptocurrencies received 'neutral' ratings.

Regarding bonds favorable during rate cuts, they recommended 'overweight' positions in government bonds, Korean credit bonds, developed country government bonds, and US investment-grade bonds.

Special High-Interest Savings Deposits Offering Even 0.1% More?

Terms like government bonds and REITs may feel somewhat difficult for some.

If you prioritize principal protection and have a conservative investment style, we recommend paying attention to high-interest special savings deposits offered by banks before the rate cut.

Although expectations of a rate cut have already been priced in, lowering deposit interest rates at commercial banks, you can still find high-interest products offering over 10% annual interest if you look carefully. Expanding your search beyond first-tier banks to savings banks increases your options.

For example, Jeonbuk Bank's 'JB Super Seed Savings' offers a basic annual interest rate of 3.3% (12 months, pre-tax) plus an event preferential rate of 10%, allowing for a maximum of 13.3% interest. The event runs until the end of this month, and you can deposit between 10,000 KRW and 300,000 KRW monthly for one year.

If you deposit the maximum monthly amount of 300,000 KRW for 12 months at the highest 13.3% interest rate, you would receive 2,593,500 KRW in interest on a principal of 3,600,000 KRW. After deducting 15.4% tax on interest (39,940 KRW), the total maturity amount would be 3,819,410 KRW.

IM Bank's 'The Coupon Savings' also offers up to 10% interest. The base rate is 4% (12 months, pre-tax), and with preferential rates applied, the maximum rate is 10%. The event runs until the end of this month and is limited to the first 10,000 accounts. You can choose a 6-month or 1-year term, with monthly deposits ranging from 1,000 KRW to 200,000 KRW.

Shinhan Bank's 'Youth First Savings,' offering up to 8% annual interest, was initially limited to 100,000 accounts but increased to 200,000 accounts at the end of last month due to full subscription. The product offers a base rate of 3.5% plus a preferential rate of up to 4.5%, totaling a maximum of 8.0% interest, making it popular.

KB Kookmin Bank also sells the 'KB Star Savings,' an online-only product limited to 100,000 accounts. The term is 12 months, with monthly deposits from a minimum of 10,000 KRW to 300,000 KRW. The base interest rate is 2%, and the maximum rate including preferential rates is 8%.