After Interest Rate Hike Fallout... Bank Deposits Swell by 4.7 Trillion Won in Two Days

Funds Move to Banks as Interest Rates Rise
10 Trillion Won Increase in 15 Days... 'Money Move' to Safe Assets Expected to Accelerate

[Asia Economy Reporter Kwangho Lee] As the Bank of Korea's base interest rate hike marks the beginning of a full-fledged interest rate rise period, market funds are flocking to banks. The government's strengthened loan regulations and increased uncertainty in domestic and international financial markets are also fueling the movement of funds toward safe assets.

With the Bank of Korea's announcement of additional rate hikes within the year and the U.S. Federal Reserve hinting at the possibility of tapering asset purchases, the money movement phenomenon in the market?where funds had been concentrated in the stock market and cryptocurrencies?is expected to accelerate further.

According to the financial sector on the 31st, the balance of time deposits at the five major banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?stood at 659.5362 trillion won as of the 27th, an increase of 4.7284 trillion won in just two days compared to 654.8078 trillion won on the 25th, right before the base rate hike.

There had been little change until mid-month, but the news of the base rate hike triggered a rapid increase. Compared to the 17th, time deposits surged by 10.7393 trillion won in just ten days.

The increase in time deposits is due to growing uncertainty about investments. With banks raising interest rates, the relative value of deposits has increased, and some adjustments in investment products such as stocks are expected, leading more investors to lock in their money. A representative from a commercial bank said, "The base rate hike will bring significant changes to the money market, not only through rising loan rates but also through rising deposit rates."

Commercial banks will simultaneously adjust savings and deposit interest rates starting this week. Following Shinhan Bank's 0.2?0.3 percentage point increase in basic interest rates for savings and deposit products on the 30th, NH Nonghyup Bank plans to raise rates by 0.05?0.25 percentage points from September 1. KB Kookmin, Hana, and Woori Banks also plan to raise savings and deposit rates soon.

Experts see the interest rates moving differently from before, causing a seismic shift in the money market as idle funds seek high-interest products.

Professor Junggeun Oh of the Department of Financial IT, Graduate School of Information and Communication, Konkuk University, emphasized, "As we enter an era of tightening, the movement of money toward safe assets will accelerate rapidly. Since we are at a turning point where it may be difficult to expect returns from risky assets for the time being, a cool-headed judgment is necessary."

Professor Taeyoon Sung of the Department of Economics, Yonsei University, predicted, "Considering the inflation trend and liquidity adjustment phase, interest rate hikes are inevitable alternatives, and rather than sharp increases, gradual continuous adjustments are expected. Under this direction, the preference for safe assets will expand further."

Advice was also given to increase the proportion of cash assets in line with the rising interest rate period. Haksoo Kim, PB team leader at Hana Bank Dogok PB Center Branch, said, "During a period of rising interest rates, the value of real assets falls while the value of cash assets rises. It is advisable to reduce the proportion of investment products and increase the proportion of cash assets." He added, "If you choose time deposits, it is better to select short-term fixed-rate products or products that allow deposit management with automatic interest rate linkage during the contract period."

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