Bank of Korea's 'Big Cut'... Savings Bank Deposit Interest Rates Fall to 1% Range (Comprehensive)

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 were relatively higher than those of commercial banks, have dropped to the 1% range per annum. With the Bank of Korea's base rate cut (a 0.5 percentage point cut, known as a big cut), it is expected that savings banks will continue to lower their deposit interest rates.

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 interest 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 last year, savings bank deposit interest 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 interest rates are also plummeting. As of this day, the average savings interest rate for 1-year maturity 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 today, the main savings banks offering over 3% interest are Welcome Savings Bank, JT Chin-Ae Savings Bank, and Eugene Savings Bank.

Lee Ju-yeol, Governor of the Bank of Korea, is striking the gavel at the 'Monetary Policy Direction Financial Monetary Committee' held at the Bank of Korea in Jung-gu, Seoul on the 17th. Photo by Kang Jin-hyung aymsdream@

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, none have held such promotions. Since the beginning of this month, not a single savings bank has held a special promotional event.

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

Furthermore, savings bank officials unanimously say, "We will follow suit and lower rates once commercial banks reduce theirs." When commercial bank rates are too low, funds with nowhere else to go flock to savings banks, causing a 'concentration phenomenon' that actually worsens savings bank operations.

An industry insider explained, "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 cuts are expected to take more time. Typically, savings bank loan interest rates lag behind deposit rates. While bank loans immediately reflect interest rate changes, savings banks calculate loan rates based on lowered deposit rates. Additionally, since many savings bank loans are fixed-rate with a 1-year maturity, industry insiders explain that reduced rates will apply upon maturity extension or new loans.

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