[1mm Finance Talk] As Regional and Internet Banks Push Deposit Rates Above 3%... Major Banks Set Their Sights on ELDs

Time deposit rates at the five major banks lag regional and internet banks at 2.8?2.9%
Wave of high-yield ELD launches...customers must beware of knock-out conditions

Banks are racking their brains to prevent an outflow of deposits. While regional base banks and internet-only banks are rolling out time deposits with annual interest rates exceeding 3% (based on a 12?month maturity), commercial banks are both raising their time deposit rates to the high?2% range and steering customers toward equity-linked deposits (ELDs) tied to the stock market.

According to the financial sector on the 25th, the representative time deposit rates at the five major banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup) have risen by 0.05 to 0.1 percentage points from last month, with top rates now in the 2.8-2.9% per annum range.

As of this month, KB Kookmin Bank’s “KB Star Time Deposit” and Shinhan Bank’s “My Plus Time Deposit” both offer 2.9% per annum, while Hana Bank’s “Hana Time Deposit” offers 2.85% per annum. Woori Bank’s “Woori First Transaction Preferential Time Deposit” provides up to 3.0% including preferential rates, and NH Nonghyup Bank’s “NH Allone e?Deposit” currently offers 2.9% per annum.

Regional banks launch 3% range deposits to prevent outflow of funds

Regional banks and internet-only banks are aggressively raising rates. To prevent customer migration to competing banks and to increase their deposit balances, they have chosen to offer deposit rates higher than those of the major commercial banks.

The annual interest rates on BNK Busan Bank’s “The Special Time Deposit” and Jeonbuk Bank’s “JB 123 Time Deposit” reach 3.10%. Gwangju Bank’s “Good Start Deposit” offers 3.01%, and BNK Kyongnam Bank’s “The Reliable Deposit” and “The Partner Deposit” both offer 3.00%.

Among internet-only banks, the rate on K Bank’s “Code K Time Deposit” is 3.01%, and KakaoBank’s time deposit rate is 3.00%, both up 0.05 percentage points from last month.

Major banks see ELD sales boom…up 67% year-on-year

Commercial banks are focusing more on operating ELD products than on competing purely on interest rates. An ELD is a product that invests most of its assets in time deposits or government bonds to guarantee principal, while linking part of the return to a stock index (such as the KOSPI 200) to seek additional gains.

With loan growth shrinking and time deposit balances declining gradually, banks appear to have concluded that it is better to attract customers with products linked to the stock market than with plain time deposits. As of the end of last month, the combined time deposit balance at the five major banks fell by 2.7484 trillion won (0.29%), from 939.2863 trillion won the previous month to 936.5379 trillion won. In contrast, deposits at asset management companies operating money market funds (MMFs), equity funds, and other funds expanded by about 91.9 trillion won from the previous month. As commercial banks concentrate on selling ELDs, total ELD sales at the four commercial banks operating ELDs (Kookmin, Shinhan, Hana, and Nonghyup) surged to 12.3333 trillion won last year, a 67.2% jump compared with 2024 (7.3733 trillion won).

On this day, KB Kookmin Bank is launching an ELD that can offer up to 14% per annum depending on index movements. KB Kookmin Bank also rolled out an ELD product last month targeting returns of 1.8-11.2%. Shinhan Bank began marketing an ELD product the previous day with a maximum annual return of 10%. Hana Bank is currently selling an ELD with a maximum rate of 10% per annum (6?month maturity). Nonghyup Bank is also reviewing the design of its first ELD of the year with a high?return structure.

Most ELDs have knock-out conditions…investors must scrutinize product terms

However, experts advise that investors should be cautious, as many ELD products are structured with knock?out conditions. For example, even for an ELD that offers a maximum annual rate in the 10% range when the KOSPI 200, used as the underlying asset, rises by 0-20% from the reference index, if the index has exceeded a 20% gain even once, the payout is set in the 2% range, and if it falls below the reference index, the payout drops to the 1% range. Because of this, if the KOSPI index surges as sharply as it did last year, investors may end up receiving less interest than on a regular time deposit.

An official at one of the banks said, “As the KOSPI boom continues over a prolonged period, more customers are seeking ELDs, and banks are steadily developing and launching related products to diversify their revenue structures,” but added, “It is advisable for customers to carefully examine the product conditions before investing.”