Commercial Banks' Deposit Interest Rates Approaching 2%... Trend of Reverse Money Movement Expanding

Not Falling Behind Even Compared to Internet Bank Deposit Interest Rates

[Asia Economy Reporter Yu Je-hoon] A, a woman in her 30s living in the Seoul metropolitan area, is recently contemplating terminating a fixed deposit with about two years remaining until maturity. She had diligently saved a lump sum of 30 million KRW and deposited it last year into a 3-year fixed deposit account at a commercial bank with an interest rate of 0.9%. However, with interest rates rising and similar products now offering rates exceeding 2.0%, the difference in interest alone amounts to 1 million KRW by simple calculation.

Deposit interest rates at commercial banks are approaching the 2% range. Following the Bank of Korea's rate hikes, each bank has rapidly increased deposit interest rates on products such as savings and fixed deposits. Additionally, as asset markets like real estate and stocks continue to stagnate, the phenomenon of 'reverse money move' is also spreading.

According to the financial sector on the 19th, the five major domestic commercial banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) recently raised their deposit interest rates by up to 0.3 to 0.4 percentage points each. The regional bank BNK Busan Bank also raised its deposit interest rates by 0.4 percentage points the day before. Unlike before, just five days after the Bank of Korea raised the base rate by 0.25 percentage points to 1.5%, major banks swiftly responded by increasing deposit interest rates.

As a result, the deposit interest rates for major fixed deposit products at each bank have risen to the 2% range. Based on a 12-month maturity, Woori Bank’s ‘WON Fixed Deposit’ offers 2.20%, KB Kookmin Bank’s ‘KB Star Deposit’ is at 2.18%, Hana Bank’s ‘Hana Fixed Deposit’ is 2.15%, and Shinhan Bank’s ‘Sol Comfortable Fixed Deposit’ reaches 2.10%.

These rates are comparable to those of internet banks that have attracted idle funds with relatively high interest rates, such as Kakao Bank’s fixed deposit (2.00%) and K Bank’s fixed deposit (2.10%). A financial sector official stated, "Internet banks will also respond, but since they have aggressively raised deposit interest rates to secure liquidity, their capacity for further increases may be limited."

Regarding installment savings products, ultra-high interest special promotional products, which are rarely seen these days, have also appeared. Shinhan Bank launched the ‘Post Office Shinhan Friendship Installment Savings’ yesterday in collaboration with the Post Office, offering an interest rate of 8.95% per annum if preferential conditions are met.

With forecasts suggesting that the domestic base interest rate could rise to around 2.00?2.50% this year to counter inflation, the industry evaluates that such deposit interest rate hikes are likely to continue. According to the Bank of Korea, the weighted average interest rate for new 1-year term savings deposits at deposit banks was 1.70% as of February, and it is highly likely to surpass 2% within the year. For fixed deposits, it was 1.91%, and for installment savings, 3.81%, approaching 2% and 4%, respectively.

In this situation, the reverse money move phenomenon, where idle funds in the market flow into savings and fixed deposits, is also becoming more pronounced. A commercial bank official said, "During a period of rising interest rates, especially in a phase where multiple base rate hikes are expected within a year like now, it is advantageous to keep the savings and fixed deposit periods short to benefit from the interest rate increases."

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