Parents' Created Cheongyak Savings Account, Pros and Cons of Switching to 'Comprehensive Savings' [Practical Finance]

Temporary Conversion of Subscription Savings, Installment Savings, and Deposits to Comprehensive Subscription Savings Until September 30 Next Year
Expanded Eligible Housing for Subscription and Benefits of High Interest Rates
Careful Consideration of Pros and Cons Needed

The government is temporarily allowing the conversion of subscription savings, installment savings, and deposits into the comprehensive housing subscription savings until the end of September next year, causing increased concerns among former subscription account holders. While converting these products into comprehensive housing subscription savings allows applications for all public and private housing and offers advantages such as relatively higher interest rates and income tax deductions, there are limitations such as the inability to gift the account and restricted use of previous payment records. Therefore, the financial sector advises weighing the pros and cons carefully.

1.3 Million Accounts Still Hold Subscription Savings, Installment Savings, and Deposits

Yonhap News

According to the Korea Real Estate Board's Subscription Home as of the end of November, the number of subscription savings, installment savings, and deposit accounts nationwide was 1,324,888, a 7.49% decrease compared to the same period last year. Although nearly ten years have passed since new subscriptions were halted in September 2015 (2,353,669 accounts), more than half of the accounts remain active.

Specifically, subscription deposits were the most numerous at 854,448 accounts, followed by subscription savings (331,252 accounts) and subscription installment savings (139,188 accounts). The housing subscription system started in 1977 under the "Regulations on Priority Supply of National Housing." Initially applied to public housing, the subscription system was extended to private housing the following year. Accordingly, subscription savings were divided into ▲subscription savings, ▲subscription installment savings, and ▲subscription deposits based on whether the housing was public or private.

For subscription savings, the eligible applicants were heads of households without housing, and the target housing was public institution-built housing under 85㎡. Monthly payments ranged from 20,000 to 100,000 KRW. Subscription installment savings and deposits targeted private housing. For subscription installment savings, applicants were individuals aged 20 or older (including homeowners), and the target housing was private housing under 85㎡, with monthly payments from 50,000 to 500,000 KRW.

Subscription deposits were also for individuals aged 20 or older, targeting all private housing. Depending on the region, a lump sum deposit ranging from 2 million to 15 million KRW was required. These three products have not accepted new subscriptions since September 1, 2015.

The comprehensive housing subscription savings, introduced in 2009, combine these existing products into one. Anyone can subscribe to the comprehensive housing subscription savings, which covers all public and private housing. Savings can be maintained by monthly payments of 20,000 to 500,000 KRW or a lump sum payment of 15 million KRW. As of the end of November, comprehensive housing subscription savings accounted for 25,284,478 accounts, representing 95.02% of all subscription accounts (26,609,366 accounts), making it the leading subscription product.

Conversion to 'Comprehensive Savings' Possible Until End of September Next Year

The government is temporarily allowing the conversion of subscription savings, installment savings, and deposits into comprehensive housing subscription savings until the end of September next year. From next year, it will also be possible to apply for conversion to comprehensive housing subscription savings at other banks. A financial sector official said, "It is necessary to decide whether to convert before September next year, considering one's subscription plans and fund utilization."

The primary advantage of converting subscription savings, installment savings, and deposits into comprehensive housing subscription savings is the expanded eligibility for housing applications. While existing subscription savings holders could only apply for public housing and subscription deposit or installment savings holders could only apply for private housing, conversion to comprehensive housing subscription savings allows applications without distinction.

Comprehensive housing subscription savings also offer enhanced interest rate benefits. The government recently raised the interest rate on comprehensive housing subscription savings by 0.3 percentage points to a maximum of 3.1%. To encourage subscription account enrollment, the government has increased subscription account interest rates three times during this administration: 0.3 percentage points in 2022 and 0.7 percentage points in 2023. Additionally, the income tax deduction limit for subscription accounts has been raised from 2.4 million KRW to 3 million KRW, providing further tax benefits.

Following last year's amendment to the "Regulations on Housing Supply," when applying for general supply of private housing, applicants can combine 50% of their spouse's subscription account subscription period, up to a maximum of 3 points, as a scoring factor. For example, if the applicant has been subscribed for 5 years and the spouse for 1 year, the applicant can receive 7 points plus 2 points from the spouse, totaling 9 points.

Another advantage is that when converting subscription savings, installment savings, and deposits into comprehensive housing subscription savings, the previously paid amounts and subscription periods are recognized as is. Since longer subscription periods are advantageous in housing applications, early conversion can help in planning housing acquisition.

It is also worth noting that banks are running various promotional events offering benefits for converting to comprehensive housing subscription savings. For example, Woori Bank is providing gift certificates worth 50,000 KRW to customers holding subscription deposits or installment savings who convert to comprehensive housing subscription savings by the end of this month. The industry expects marketing activities to become more active from next year when conversion between banks becomes possible.

Careful Consideration of Pros and Cons Needed

Of course, there are several points to consider. First, although converting subscription savings, installment savings, and deposits into comprehensive housing subscription savings expands the housing application scope to all public and private housing, the subscription records related to the newly added application types are only recognized from the time of conversion onward. For example, if a subscription savings holder converts to comprehensive housing subscription savings, the previously recognized payment amount and subscription periods for public housing remain valid, but for the expanded target of private housing, only the payment amount is additionally recognized, and the subscription period is counted from after conversion. Depending on one's subscription plans, this may not yield significant benefits.

If a subscription deposit, installment savings, or subscription savings holder has already applied for housing, conversion applications are not possible until the housing application results are finalized. Also, conversion must be completed by the day before the initial public recruitment announcement date of the housing to be applied for to be eligible for comprehensive housing subscription savings applications. For subscribers who have previously converted subscription savings or installment savings to subscription deposits, those who maintained the product until the system improvement implementation date (October 1) can apply for conversion, which should also be considered.

It is important to note that comprehensive housing subscription savings cannot be gifted and can only be inherited. Existing subscription savings and subscription deposits or installment savings subscribed before March 26, 2000, can be gifted not only to children but also to spouses and household members who are direct ascendants or descendants. In contrast, comprehensive housing subscription savings and subscription deposits or installment savings subscribed after March 27, 2000, can only be inherited by children upon the subscriber's death. Depending on future financial plans, conversion may result in disadvantages.

Additionally, once converted to comprehensive housing subscription savings, reverting to the original subscription savings, installment savings, or deposit products is not possible. A representative from a commercial bank said, "From next year, conversion between banks will be possible, increasing options. Since the range of housing eligible for subscription is expanded compared to before, it is reasonable to weigh the pros and cons and decide whether to convert before September next year."