Bank Deposit Interest Rates Cut Again... Homegrown Customers Flee at Lightning Speed Due to Meager Interest

Woori Bank Lowers Fixed Deposit Interest Rate by 0.25%p from the 15th
Major Banks' Fixed Deposit Rates Fall Below 1% Annually
Funds Flowing into Stock Market... Tiny Interest Cuts Fuel Rapid Outflow

[Asia Economy Reporter Park Sun-mi] These days, Kim Sang-hyeok (53, pseudonym), who has 100 million won in spare money, is worried about finding a suitable investment destination. Considering his age and disposition, a bank fixed deposit would be perfect, but the meager interest rates were bothersome. With deposit interest rates averaging 0.6~0.7% annually and a 15.4% tax deducted, only about 500,000 won in annual profit remains. Ultimately, Kim decided to install a securities company’s Mobile Trading System (MTS), something he had never tried before, and join the ranks of the ‘Donghak Ants’ investors.

While liquidity is concentrating in the stock and real estate markets, bank fixed deposit interest rates continue to decline. The basic interest rates for fixed deposits at the five major commercial banks?KB Kookmin, Shinhan, Woori, Hana, and NH Nonghyup?are below 1% annually, and this trend is continuing downward. Coupled with the stock market boom, the outflow of funds from bank deposits is likely to accelerate further.

According to the banking sector on the 14th, Woori Bank will lower the interest rates on its main fixed deposit products, ‘Woori Super Fixed Deposit’ and ‘Senior Plus Woori Deposit,’ starting from the 15th at branches. For the Woori Super Fixed Deposit with a one-year maturity, the interest rate will drop by 0.25 percentage points from the current 0.90% per annum to 0.65%. The Senior Plus Woori Deposit (revolving and immediate pension types) will also see a decrease from the current 0.55% to 0.30% per annum for a 12-month term.

A Woori Bank official explained, "We adjusted the interest rates considering that Woori Bank’s rates were more than 20 basis points (0.2%) higher than those of other banks’ main fixed deposit products."

Currently, bank fixed deposit interest rates do not reach 1% annually. The basic interest rates for fixed deposits at the five major banks, as disclosed by the Korea Federation of Banks, range from 0.45% to 0.90% for a 12-month term. Since the rates fell below 1% for the first time in June last year, they have remained at ‘zero interest rate’ levels. Banks offer additional preferential interest rates if customers meet conditions such as credit card usage or automatic payment of utility and management fees, but these conditions are strict and the preferential rates are not high, leading consumers to describe fixed deposit interest as ‘meager.’

Bank Fixed Deposit Interest Rates Below 1%
Rapid Outflow from Deposits to Stock Market Amid Stock Boom Due to Lack of Interest Rate Appeal

As deposit interest rates fall further, more consumers judge that there is no need to lock funds away for meager interest. As the KOSPI rises, consumers are withdrawing money from fixed deposits and moving funds to investment destinations like stocks that offer higher returns.

The total balance of deposits and savings at the five major banks stood at 673.7286 trillion won at the end of last month, down nearly 12 trillion won from a year ago. The decline was especially sharp since November last year, when the KOSPI surged. In December, the deposit and savings balance decreased by 7.5832 trillion won compared to the previous month. Recently, even demand deposits, which are liquid funds that depositors can withdraw anytime without restrictions, have seen outflows. As of the 12th, the demand deposit balance at the five major banks was 608.4 trillion won, down about 22.7 trillion won from 631.1 trillion won at the end of last year.

A bank official said, "We are running events that add extra interest rates to deposit products to attract app subscribers, but it is inevitable that overall bank deposit interest rates decline amid the low interest rate environment. Since the stock market is relatively booming, customers disappointed with low interest rates are withdrawing money from deposits."

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