Interest Rate Cut Begins... 20 Trillion Won Poured into Savings and Time Deposits in Three Months

As the era of significant interest rate cuts has arrived, it has been revealed that over 20 trillion won has flowed into fixed-term deposits and savings accounts in the past three months. Since the trend of interest rate cuts is expected to continue for the time being, it is analyzed that a last-minute rush is occurring, targeting relatively high interest rates.

According to the financial sector on the 4th, the total amount of fixed-term deposits and savings at the five major domestic banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) as of the end of last month was 987.7606 trillion won. This is an increase of 19.2819 trillion won (about 2%) compared to the end of September (968.4787 trillion won), before the Bank of Korea's base rate cut was implemented.

Looking at the monthly data, in October (October 11), when the interest rate cut was made, the balance of deposits and savings at the end of the month increased by 12.4522 trillion won to 980.9309 trillion won compared to the previous month. Similarly, in November (November 28), when a surprise rate cut was also implemented, the month-end balance expanded by 6.8297 trillion won.

The financial sector interprets this trend as a result of savers rushing to fixed-term deposits and savings to enjoy the relative high interest rate effect as the full-scale interest rate cut period began. This is not a recent trend. Compared to the end of November last year, the growth rate of fixed-term deposits and savings was 8%, with funds amounting to 73.8973 trillion won flowing into fixed-term deposits and savings over the past year.

The background of this concentration phenomenon lies in the steadily declining deposit interest rates. According to the Bank of Korea Economic Statistics System, the deposit interest rate based on new contracts at domestic deposit banks reached 4.18% in November last year but fell to 3.37% in October as the peak interest rate theory spread. Looking at the fixed deposit interest rates of the five major banks, the annual highest rates as of the previous day were between 3.20% and 3.40% (including preferential rates), which is about 0.05 to 0.10 percentage points lower than at the end of last month.

The decline in deposit interest rates in the secondary financial sector, such as savings banks and mutual finance, also follows this trend. Looking at the deposit interest rates (1-year maturity) of non-bank deposit institutions (savings banks, Saemaeul Geumgo, mutual finance, credit cooperatives), they were at the level of 4.09% to 4.49% in November last year but had fallen to 3.50% to 3.68% by the end of October. The downward trend has continued recently as well. As of the previous day, the 1-year fixed deposit interest rate at 79 savings banks nationwide was 3.43%, down 0.03 percentage points from the end of the previous month (3.46%).

The downward trend is expected to continue for the time being. The 1-year bank bond rate, one of the criteria for determining banks' deposit interest rates, fell to 3.00% as of the 2nd. A representative from a commercial bank said, "The market expects the U.S. Federal Reserve (Fed) to cut rates three times next year, and the Bank of Korea to cut rates once more," adding, "A downward adjustment of deposit interest rates is inevitable."