[1mm Financial Talk] The Popular 'Cheongnyeon Hope Savings' That Raises Concerns

Annual 9% Interest Rate Effect... 20s and 30s Flock, Preview Service Delayed
Government Budget Limits Make It Difficult to Accept All Applicants
Different Interest Calculation Methods for Time Deposits and Installment Savings May Cause Misunderstandings

[Asia Economy Reporter Shim Nayoung] Since reports emerged that the Youth Hope Installment Savings offer an annual 9% interest rate effect to help low- and middle-income youths build assets, people in their 20s and 30s have shown great interest. With a youth financial policy that truly resonates appearing after a long time, not only financial influencers and economic blogs but even job seekers’ internet cafes are abuzz. This has even led to delays in the ‘preview service’ banks provide to check eligibility for installment savings enrollment.

Inside the Financial Services Commission (FSC), there is surprise, with comments like, "We thought youths these days would be only into coins or stocks, but we didn’t expect such a big response to installment savings." However, they also express concerns that, since the government budget is capped, it will be difficult to accept all applicants, and that even with a 9% annual rate, the different interest calculation methods between time deposits and installment savings might cause misunderstandings among subscribers.

The total budget set by the FSC for the Youth Hope Installment Savings product is 45.6 billion KRW. The interest is paid by the banks, and this budget is used for the savings incentive added on top of the interest. An FSC official explained, "Banks provide subscribers with a 5% annual interest rate, and if the 2-year term is completed, a savings incentive is paid from the government budget at 2% of the first-year payment amount and 4% of the second-year payment amount." They added, "With exemptions from interest income tax and special rural tax, this results in an effective annual interest rate of about 9%." If one deposits 500,000 KRW monthly for two years, they would receive 625,000 KRW in interest and 360,000 KRW in savings incentives, totaling 985,000 KRW in interest benefits.

Since each subscriber’s payment amount varies, the exact speed at which the 45.6 billion KRW budget will be exhausted can only be known once enrollment begins on the 21st. The financial sector predicts, "It’s only a matter of time before the budget runs out." In addition to the high interest effect, banks are fueling enthusiasm by offering luxury wallets worth 700,000 KRW as prizes to attract young customers. From the 21st, applications will be accepted on a first-come, first-served basis at 11 banks including KB Kookmin, Shinhan, Hana, and Woori. Gyeongnam Bank will launch on the 28th, and SC First Bank is scheduled to release the product in June. However, the FSC explains that once the budget is depleted, product launches thereafter will be difficult.

The FSC also urges, "We want youths to be aware that the interest calculation methods for time deposits and installment savings differ." If a youth deposits 500,000 KRW monthly for two years, the total is 12 million KRW, but the interest earned differs greatly compared to putting the entire amount into a time deposit at 9% annual interest from the start. A simple calculation shows that 12 million KRW in a 9% time deposit for two years would yield about 2.16 million KRW in interest, whereas the Youth Hope Installment Savings yields just under half that amount, 985,000 KRW. An FSC official said, "Since some are new to installment savings, if they don’t fully understand this, they might be disappointed to find the interest they receive later is much smaller than expected."

The Youth Hope Installment Savings is available to those aged 18 to 34 and with an annual income of 36 million KRW or less in 2021. There are no restrictions based on occupation or company size. However, there are complaints about eligibility being determined solely by age and income. Since there is no separate asset ceiling, those who own houses or commercial properties can apply, while those without assets but with salaries above the eligibility threshold may be unable to enroll.

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