60 Trillion Withdrawn from Savings and Deposits This Year... Covering Living Expenses or All-in on Stocks (Comprehensive)

Due to COVID-19, increase in early contract terminations for living expenses amid self-employed business closures
Impact of fund shifts to stock investments also noted

[Asia Economy Reporter Kim Min-young] Office worker Jeon Min-su successfully saved up a lump sum of 100 million won over several years. Jeon withdrew money from matured fixed deposits and savings accounts and transferred it to a bank's demand deposit account. This was to invest in stocks he recently heard about from an acquaintance. Although worried about market volatility, he plans to invest at least a small amount after hearing that friends around him made money from stocks. Jeon said, "I prefer long-term investments, but when the stock market is booming like this year’s Donghak Ants craze, it seems okay to invest in stocks."

Since the beginning of this year, premature cancellations of deposits and savings before contract expiration at the five major commercial banks (Shinhan, KB Kookmin, Hana, Woori, NH Nonghyup) have reached 60 trillion won. This is interpreted as a result of many self-employed businesses shutting down due to COVID-19 and an increase in people facing livelihood difficulties such as low-income layoffs. Additionally, the stock fever also played a role as people broke their deposits and savings to invest.

According to the banking sector on the 12th, as of the end of last month, the cumulative amount of deposits and savings cancellations at the five major banks totaled 60.462 trillion won. This is an 8.05% (4.5067 trillion won) increase compared to 55.9544 trillion won during the same period last year. The number of cancellations also rose by 4.95%, reaching 5,125,574 cases from 4,883,660 cases in the same period last year.

COVID-19 Causes Surge in Self-Employed Business Closures
Premature Cancellations to Cover Living Expenses Due to Financial Hardship

Premature cancellations of deposits and savings are primarily due to financial difficulties such as lack of living expenses. Especially this year, cancellations seem to have increased as household economies have been strained by closures and layoffs caused by COVID-19.

An industry insider said, "Since money has no 'tag,' it is impossible to know exactly why money was withdrawn from deposit and savings accounts, but it is presumed that people broke their accounts due to urgent cash needs caused by business closures or layoffs."

According to Statistics Korea, the number of employed people last month decreased by more than 420,000 compared to October last year. While the number of regular workers classified as permanent employees increased by only 14,000, temporary and daily workers decreased by 260,000 and 60,000 respectively. This indicates that COVID-19 has caused greater damage to the household economy of low-income groups.

[Image source=Yonhap News]

Ultra-Low Interest Rates Lead to Losses Even When Depositing Money
Massive Shift from Bank Accounts to Stock Investments Fueled by Debt-Financed Stock Buying

However, a peculiar phenomenon has been observed this year. While some people withdrew money from deposits and savings due to financial hardship, many others moved funds to jump into the stock market, which ignited after the COVID-19 crash in March.

This is also reflected in the numbers. In March alone, the amount of deposits and savings withdrawn from the five major banks reached 8.3155 trillion won. Although it cannot be definitively said that all this money flowed into the stock market, the nearly 3 trillion won increase in cancellations compared to the same period last year (5.4743 trillion won) can hardly be explained other than by the COVID-19 outbreak and the stock market crash. Compared to February’s 5.7859 trillion won, about 2.53 trillion won more was withdrawn in one month, and industry insiders believe a significant portion of this flowed into the stock market.

The monthly number and amount of deposit and savings cancellations also increased sharply from June to October compared to the same months last year. During this period, stock market volatility increased compared to the first half of the year, but there were consecutive initial public offerings (IPOs) from companies that attracted market attention such as SK Biopharm (July), Kakao Games (September), and Big Hit (October). A new stock subscription craze blew through, requiring a minimum deposit of 20 million won to receive one share of public offering stock.

A banking sector official said, "Individuals who have put all their savings into stocks and experienced short-term profits are increasingly dissatisfied with deposit and savings interest rates," adding, "With factors such as the Korean New Deal policy, the possibility of a COVID-19 vaccine, and the conclusion of the U.S. presidential election, the stock market is in an upward trend, so money that had stayed in deposits and savings is expected to continue flowing into the stock market for the time being."

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