[Practical Finance] The Neighbor Says 5%?Will You Break or Bury It?

Commercial Banks Raise Deposit Rates by Up to 0.4%P
Multiple Short-Term Deposits Advantageous During Rate Hikes
3, 6, 12-Month Rotating Deposit Products Worth Considering
Up to 5% Depending on Conditions... 3% Range Deposit Accounts Also Available

#Last October, office worker Seo Ye-jin (32), who had tied up 10 million won of spare funds in a 3-year fixed deposit product, found herself in a dilemma. At the time, the interest rate was in the 1% range, but recently, with 2% range rates becoming common, she felt like she was losing out. Seo said, "I'm considering whether to cancel the existing deposit product and sign up for a new one."

According to the financial sector, following the Bank of Korea's base rate hikes, interest rates on savings and time deposits at commercial banks have risen, causing a phenomenon called ‘reverse money move’ where funds flow into banks. As the stock, virtual asset, and real estate markets show weakness, this trend is expected to continue for the time being, making savings and time deposit products a rising investment option.

‘Reverse Money Move’... What’s the Strategy?

On the 2nd, according to the financial sector, major commercial banks are successively raising deposit interest rates. Woori Bank raised interest rates on savings and time deposit products by up to 0.4 percentage points starting from the 27th of last month. Shinhan Bank and NH Nonghyup Bank also raised rates by up to 0.4 percentage points and 0.25 percentage points respectively from the 30th of last month. Hana Bank increased rates on a total of 22 deposit products, including savings and time deposits, by up to 0.25 percentage points. KB Kookmin Bank also raised savings and time deposit rates by up to 0.3 percentage points from the 31st. As banks raise deposit interest rates like this, the phenomenon of funds flowing into banks is accelerating. The balance of fixed deposits at the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) stood at 674.4346 trillion won as of the 24th of last month, an increase of 12.4747 trillion won compared to the end of the previous year.

Experts advise that during periods of interest rate hikes, it is advantageous to subscribe to multiple short-term products rather than long-term ones. For long-term deposit products, early withdrawal interest rates should be considered, but switching from existing products to new ones can be a viable method. During interest rate hikes, revolving deposit products that apply changed rates according to rotation cycles such as 3 months, 6 months, or 1 year are also worth considering. Kim Hyun-seop, head of KB Hannam PB Center, said, "Usually, fixed deposits are divided into 3-month, 6-month, and 12-month terms, and the interest rate difference between 6-month and 12-month terms is only about 0.3 percentage points. At this level, doing two 6-month deposits is also an option."

What Products Are Available?

With deposit interest rates rising, commercial banks have introduced installment savings products with rates in the 4% range, and up to 5% depending on conditions. Shinhan Bank’s representative installment savings product, ‘Shinhan Annyeong, Bangawo Installment Savings 1-Year Term,’ offers a top interest rate of about 4.6% per annum. The Shinhan Sae-hope Installment Savings, which supports lump-sum savings for low-income earners such as basic livelihood security recipients, has increased its rate by 0.3 percentage points to a maximum of 5.0% per annum. Shinhan Bank’s 6-month product, ‘Solpyeonhan Gift Installment Savings,’ offers an interest rate of up to 3.1% per annum.

For KB Kookmin Premium Installment Savings, the highest interest rate for a 5-year term has been changed to 3.75%. Woori Bank’s non-face-to-face exclusive product, ‘WON Installment Savings,’ has been raised to a maximum of 3.0% per annum. Hana Bank’s ‘Salary Hana Monthly Compound Interest Installment Savings’ and ‘Main Transaction Hana Monthly Compound Interest Installment Savings’ offer up to 3.2% for a 1-year term and 3.5% for a 3-year term. Travel installment savings also offer up to 3.45% for a 1-year term. KB Savings Bank offers a 5% annual interest rate to first-time subscribers of ‘KB Kkul Installment Savings.’

Deposit accounts with interest rates in the 3% range have also appeared. Woori Bank’s non-face-to-face exclusive product, ‘Woori First Transaction Preferential Deposit,’ has been adjusted to a maximum interest rate of 3.1% per annum. K Bank’s Code K Time Deposit applies 3.0% for subscription periods of 1 year or more but less than 2 years, 3.20% for 2 years or more but less than 3 years, and 3.5% for 3 years. As savings and time deposit interest rates rise, the interest rates on short-term holding accounts called ‘parking accounts’ are also increasing. Hana Savings Bank’s ‘High Ordinary Deposit,’ launched on the 23rd, applies an interest rate of up to 2.5% for deposits under 30 million won.

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