Large Sums Flock to Bank Time Deposits... 4.7 Trillion Won Inflow in Two Days (Comprehensive)

After Interest Rate Hike Fallout... 'Money Move' Toward 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, funds in the market are flocking to banks. The government's tightening of 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.

Time Deposits at 5 Major Banks Increase by 4.7 Trillion KRW in Two Days and 10.7 Trillion KRW in Half a Month

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 KRW as of the 27th, an increase of 4.7284 trillion KRW in just two days compared to 654.8078 trillion KRW on the 25th, right before the base interest 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, the balance surged by 10.7393 trillion KRW 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 interest rates but also through rising deposit interest rates."

Banks Simultaneously Adjust Deposit and Savings Interest Rates... Shinhan Bank Raises Up to 0.3%p

Commercial banks are starting to adjust deposit and savings interest rates simultaneously from this week. On the 30th, Shinhan Bank raised the base interest rates of its deposit and savings products by 0.2 to 0.3 percentage points, followed by NH Nonghyup Bank planning to raise rates by 0.05 to 0.25 percentage points from September 1. KB Kookmin, Hana, and Woori Banks also plan to raise deposit and savings interest rates soon.

Experts expect that interest rates will show movements different from before, causing a seismic shift in the money market as idle funds in the market move toward high-interest products.

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

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

"During Interest Rate Rise, Reduce Investment Product Proportion and Increase Cash Assets"

Advice has also been given to increase the proportion of cash assets in line with the interest rate rise period. Kim Hak-soo, PB team leader at Hana Bank Dogok PB Center Branch, said, "During an interest rate rise, 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 within the contract period."

Meanwhile, as of the 27th, the balance of demand deposits at the five major banks was 684.4922 trillion KRW, an increase of 3.7068 trillion KRW compared to 539.1109 trillion KRW on the 25th, and 6.3636 trillion KRW compared to 678.1286 trillion KRW on the 2nd.

Demand deposits include freely withdrawable deposits and money market deposit accounts (MMDA). Since they can be liquidated at any time, they have the nature of 'standby funds' before finding an investment destination. An increase in demand deposit balances means there is a large amount of 'money without a place to go.'

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