Deposit Rates Continue to Fall
Both Savings Banks and Mutual Finance Institutions Stuck in the 2% Range
High-Interest Special Promotions Disappear
Rush for Last-Minute Deposits Amid U.S. Rate Cuts
The 모습 of financial technology enthusiasts waiting before business hours to subscribe to past high-interest special products. Photo by Yonhap News
As deposit interest rates continue to decline, financial technology enthusiasts are finding themselves with fewer options. The interest rates offered by secondary financial institutions, which once attracted customers with high-interest special products, are now hovering around the 2% range. The once-common sight of people lining up before opening hours to secure these special offers has long since disappeared.
According to the Korea Federation of Savings Banks on October 13, the average annual interest rate for 12-month time deposits at 79 savings banks nationwide was 2.82% as of October 12. Out of 304 publicly listed products, only 38 offered an interest rate of 3% or higher. This represents a drop to one-fifth of the 191 products available as of September 1. Even the highest-yielding product only reached 3.1%, barely surpassing the 3% mark.
The situation is similar among mutual finance institutions. High-interest special products, which used to be regularly introduced by Saemaul Geumgo and credit unions, have become hard to find. According to the Bank of Korea's statistical system, deposit interest rates at mutual finance institutions have been declining every month this year. As of the end of August, the interest rate for 12-month time deposits stood at 2.64%, just slightly above the base rate. Credit unions and Saemaul Geumgo recorded rates of 2.83% and 2.8%, respectively, both remaining in the 2% range. Although some regional Saemaul Geumgo branches and credit unions are offering products with rates in the 3% range, even these are only between 3.1% and 3.15%.
With the deposit protection limit raised from 50 million won to 100 million won as of September 1, there were expectations that funds from major commercial banks would move into secondary financial institutions. However, the market has remained relatively quiet. The minimal gap in interest rates between secondary financial institutions and major commercial banks has led to subdued activity among financial technology enthusiasts. The representative 12-month time deposit products at the five major commercial banks-KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup-offer interest rates between 2.5% and 2.55%.
The difficulty in finding high-interest products at both commercial banks and secondary financial institutions is attributed to the impact of project financing (PF) loan defaults and the government's tightening of household loan regulations. As lending capacity has decreased, there is less incentive to attract deposits. In addition, the trend of interest rate cuts in the United States and expectations of an economic slowdown have fueled speculation that the Bank of Korea may implement additional rate cuts within the year. As a result, the downward trend in deposit interest rates is likely to continue for the foreseeable future.
As financial technology enthusiasts run out of options, idle investment funds have surged. As of the end of September, the balance of demand deposits-including money market deposit accounts (MMDA)-at the five major banks stood at 669.7238 trillion won, an increase of 26.0154 trillion won from the previous month (643.7084 trillion won). A financial industry insider commented, "Some customers are still trying to catch the last train for deposit products," but added, "With the stock market showing strength these days, there is also a noticeable shift toward stock investments."
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