[Financial Microscope] Era of 100 Million Won Deposit Protection Limit... "Money Move Hits Savings Banks, Not Commercial Banks"

Deposit Insurance Limit Raised to 100 Million Won for the First Time in 24 Years
Half of Deposits Remain Unprotected
Are Only Savings and Time Deposits Covered?
A Comprehensive Guide to Deposit Protection
Will the 'Money Move' Accelerate o

The deposit protection limit, which safeguards deposits in the event that a financial institution is unable to pay due to bankruptcy or other reasons, was raised from 50 million won to 100 million won as of September 1. This is the first revision in 24 years since the limit was set at 50 million won in 2001. The need to revise the deposit protection limit has been consistently raised, as the limit failed to keep pace with economic and financial growth, leading to this amendment. While concerns have been voiced about a potential "money move" to non-bank institutions due to the higher limit, some experts predict that such a shift will be minimal, given the small interest rate gap between banks and non-banks.

Deposit Protection Limit Raised for the First Time in 24 Years... 50% of Deposits Remain Unprotected

According to the financial sector, the deposit protection limit was doubled from 50 million won to 100 million won as of September 1. Although there had been ongoing discussions about raising the limit, the debate reignited in earnest when President Lee Jaemyung, during his presidential campaign, stated, "Raising the deposit protection limit from the current 50 million won to 100 million won is what the public wants," and added, "I will push for this swiftly, even designating it as a fast-track agenda if necessary."

The argument for raising the deposit protection limit was further strengthened by considering the increase in per capita GDP over the past 24 years and the protection limits in major overseas countries. Per capita GDP rose from 14.93 million won in 2001 to 43.34 million won in 2023, a 2.9-fold increase, while the size of deposits and similar assets grew from 550 trillion won to 2,947 trillion won, a 5.3-fold increase. Not only has the economy grown, but compared to major countries abroad, Korea's deposit protection limit was notably low, resulting in a large amount of unprotected deposits. For reference, the deposit protection limit is 250,000 dollars (about 350 million won) in the United States, 10 million yen (about 90 million won) in Japan, and 85,000 pounds (about 150 million won) in the United Kingdom.

As the scale of deposit protection failed to keep up with economic and financial growth, the amount of unprotected deposits also increased. According to the office of Assemblyman Yoo Dongsoo of the Democratic Party, as of March last year, unprotected deposits exceeding 50 million won amounted to 1,454.3 trillion won, representing 49.7% of the total deposits in the financial sector, which stood at 2,924 trillion won.

Are Only Savings and Time Deposits Protected? ... Everything About Deposit Protection

Under the Depositor Protection Act, the deposit protection limit for banks, savings banks, insurance companies (life and non-life), investment traders and brokers, and merchant banks protected by the Korea Deposit Insurance Corporation has all been raised to 100 million won. In addition, under individual laws, the deposit protection limit for deposits protected by central mutual finance institutions such as NH Nonghyup, Suhyup, Credit Unions, and Saemaeul Geumgo has also been increased to 100 million won.

Financial products eligible for protection include savings and time deposits, insurance policy surrender values, and investor deposits-essentially, products where the principal is guaranteed. In the case of retirement pensions (DC type, IRP) and Individual Savings Accounts (ISA), protection is provided only if the funds are managed in protected products such as deposits. For example, if 100 million won in retirement pension reserves is split into 50 million won in deposits (protected product) and 50 million won in a mixed stock and bond fund (non-protected product), only the 50 million won in deposits is protected.

Financial investment products such as funds, performance-based products, comprehensive asset management accounts (CMA) at securities firms, and subordinated bonds-where the payout amount varies with investment performance-are not covered by deposit protection.

Both principal and interest are protected up to 100 million won per person, per financial institution, regardless of when the financial product was purchased. As of September 1, 2025, up to 100 million won is protected.

Will the "Money Move" Accelerate or Remain Minimal?... Large vs. Small and Medium-Sized Savings Banks

When the increase in the deposit protection limit was first announced, many in the financial sector predicted a "money move," where funds would flow into non-bank institutions offering higher interest rates than banks. Indeed, according to reports from the Financial Services Commission and the Korea Deposit Insurance Corporation, if the deposit protection limit is raised to 100 million won, savings bank deposits could increase by up to 40%.

However, some experts believe that the "money move" will not reach concerning levels. This view is supported by the argument that secondary financial institutions cannot offer interest rates attractive enough to absorb large-scale funds from banks. In fact, due to declining profitability and rising delinquency rates caused by the recent real estate project financing (PF) crisis, the interest rate gap between banks and secondary financial institutions has narrowed. According to the Bank of Korea, as of July, the interest rate for one-year term deposits was 2.52% at banks and 3.02% at savings banks, a difference of only 0.5 percentage points.

Concerns about a "money move" have not been completely dispelled. Especially in the fourth quarter, when deposit maturities are concentrated, a shift of funds into large savings banks is expected. If the interest rate gap between primary and secondary financial institutions widens, and consumer anxiety toward secondary financial institutions eases, a money move into savings banks and mutual finance institutions offering higher interest rates is likely. There is also a high possibility of a widening gap between large and small-to-medium-sized savings banks within the industry. As deposits that were previously split into 50 million won increments across multiple savings banks are consolidated into a few large savings banks, there is concern that small and medium-sized savings banks may be adversely affected.