The Youth Hope Savings Surge Effect... Increased by 700 Billion Won in Two Months

Preference for Time Deposits Over Savings Accounts
Unpopular Due to Low Interest Rates and Debt Investment
Balances of Savings Accounts at 5 Major Banks Increase Since February Thanks to Youth Hope Savings
Banks Face Increased Interest Expenses and Worry

[Image source=Yonhap News]

[Asia Economy Reporter Sim Nayoung] The recently launched Youth Hope Savings Account has reversed the deposit flow for banks. The balance of fixed-term savings, which had been declining, has started to rise again. However, banks are not pleased. Household loans, which generate interest income, have been continuously decreasing this year due to high interest rates and lending regulations, while the Youth Hope Savings Account, offering interest rates twice as high as other products, has attracted far more subscribers than expected, increasing interest expenses.

According to the five major banks (KB Kookmin, Shinhan, Woori, Hana, NH Nonghyup) as of the 28th, the total balance of fixed-term savings was 35.2517 trillion KRW, an increase of 452.5 billion KRW compared to the previous month. In February, the fixed-term savings balance also rose by 250 billion KRW (34.7992 trillion KRW). Since savings products require a one-month payment upon subscription, the increase in fixed-term savings between February and March is presumed to be the effect of the surge in Youth Hope Savings Account subscribers starting last month.

Approximately 2.9 million people have subscribed to the Youth Hope Savings Account through the five major commercial banks and six other regional banks. The maximum monthly deposit is 500,000 KRW, but subscribers can deposit less. A bank official stated, "Savings products have not been popular recently as interest rates are low and customers tend to prefer fixed deposits over fixed-term savings. The significant increase in fixed-term savings balances at the five major banks for two consecutive months is clearly influenced by the Youth Hope Savings Account."

With money flowing into stocks and cryptocurrencies, savings products had been neglected. Last year, the fixed-term savings balance at the five major banks decreased by 5.5481 trillion KRW. During the peak investment frenzy in the first half of last year (January to June), 5.3361 trillion KRW was withdrawn. Although the decline slowed to 212 billion KRW in the second half, the downward trend continued until January this year. The Youth Hope Savings Account has put a pause on the decline and lifted the savings balance again.

Banks are not entirely happy about the increase in Youth Hope Savings Account deposits, which require paying a base interest rate of 5% per annum and up to 6% with preferential rates. The Financial Services Commission created the product by allocating a budget and requesting banks to offer high-interest benefits, but the number of subscribers turned out to be eight times higher than initially expected, significantly increasing the interest burden.

According to the Korea Federation of Banks, as of the 31st, the basic interest rates for two-year maturity, flexible installment savings products with similar structures to the Youth Hope Savings Account range from 1.20% to 2.20% per annum at the five major banks. For a subscriber depositing 500,000 KRW monthly, the interest the bank must pay for the Youth Hope Savings Account is 625,000 KRW (at 5% interest), whereas for general savings products, even at the highest rate of 2.20%, it amounts to only 275,000 KRW.

The Presidential Transition Committee is preparing the Youth Leap Account, which allows subscribers to deposit 700,000 KRW monthly for 10 years (with tax support depending on income bracket) to accumulate 100 million KRW per person. It applies a 3.5% interest rate compounded faster than simple interest over a 10-year maturity. When subscribers reach maturity, the interest banks must pay per person amounts to 13,403,358 KRW (tax-exempt basis).

A bank official said, "This is more than 20 times the interest banks pay per Youth Hope Savings Account subscriber. Since the subscription period is longer and the interest benefits are higher than the Youth Hope Savings Account, the burden on banks will be unprecedentedly large, so banks are closely watching how this product will be launched."

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