High Interest Rates Are a Thing of the Past... Savings Banks Enter the Era of 1% Deposit Rates

Average Deposit Interest Rate 1.90% per Year, Savings Interest Rate Also 2.51%
Special Sale Products Missing... Industry Considering Additional Cuts

[Asia Economy Reporter Kim Min-young] The deposit interest rates of savings banks, which have been attracting customers with high-interest deposits, have dropped to the 1% range annually. In particular, with the recent big cut (0.50 percentage point reduction) by the Bank of Korea, if the trend of lowering deposit interest rates continues, it is expected that savings bank rates may struggle to stay even in the mid-1% range.

According to the Korea Federation of Savings Banks on the 17th, the average deposit interest rate of 79 savings banks as of that day was 1.90% per annum (1-year maturity). For 2-year and 3-year maturities, the rates were 1.93% and 1.95%, respectively, indicating that savings bank deposit rates have already entered the 1% era.

The business strategy of savings banks, which attracted customers with high deposit interest rates, is becoming a thing of the past. On January 1 of last year, savings bank deposit rates ranged from 2.62% (1 year) to 2.73% (3 years). After dropping about 0.5 percentage points to 2.12~2.14% on January 1 this year, the rates have fallen further in just over two months.

Savings deposit interest rates are also plummeting. As of this day, the average 1-year savings deposit interest rate at savings banks was 2.51%. This is a 0.19 percentage point decrease from 2.70% on January 1 last year. The 2-year (2.57%) and 3-year (2.67%) rates also dropped by 0.24 and 0.22 percentage points, respectively.

The number of savings banks offering interest rates above 3% has dwindled to just a few. Around this time last year, more than 50 banks offered over 3% interest on 3-year savings deposits, including large, medium, and small institutions. Some even launched products with interest rates exceeding 6%. However, as of now, the main savings banks offering over 3% interest are Welcome Savings Bank, JT Chin-Ae Savings Bank, and Eugene Savings Bank.

Special promotional products have long disappeared. Savings banks typically conduct special promotions at the end and beginning of the year to retain existing deposit customers and attract new ones, but this year, except for a few regional savings banks, no special promotions have been held. Since the beginning of this month, not a single savings bank has held a special promotion event.

The industry is reportedly already preparing for additional interest rate cuts. A savings bank official said, "We are considering lowering deposit interest rates," adding, "Internally, we are discussing reducing rates by 0.10 to 0.20 percentage points soon."

Moreover, savings bank officials unanimously say, "We will follow the lead of commercial banks in lowering rates." They explain that if commercial bank rates are too low, funds with nowhere else to go flood into savings banks, causing a 'concentration phenomenon' that actually worsens savings bank operations.

An industry insider said, "If savings banks keep their rates unchanged while commercial bank rates fall, deposits will concentrate excessively, making it difficult to maintain the loan-to-deposit ratio or comply with total loan volume regulations, which hinders operations. To 'match keys' with commercial bank rates, savings banks have no choice but to lower their rates."

Loan interest rate reductions are expected to take time. While bank loans immediately reflect interest rate changes, savings banks calculate loan rates based on lowered deposit rates. Also, since many savings bank loans are fixed-rate with 1-year maturities, industry insiders say the reduced rates will apply upon maturity extension or new loans.

This content was produced with the assistance of AI translation services.