Korea Development Bank's 'Parking Account' Interest Rate at 2.25% per Year... Surpasses Toss and K Bank as Well

Core low-cost deposit outflow drives demand deposit interest rates up "Not jealous of internet banks"

[Asia Economy Reporter Yu Je-hoon] Seo Jun-mo (alias, 34), a 7-year office worker living in Seoul, recently transferred 30 million KRW, which he had deposited in the Toss Bank Parking Account (demand deposit account), to the K Bank Parking Account. This is because the interest rate of the K Bank Parking Account is 2.1% per annum, which is 0.1 percentage points (p) higher than Toss Bank. Recently, he heard that a commercial bank offers a 2.25% annual interest rate on parking accounts and is considering switching again.

With the base interest rate hike and the subsequent rise in deposit interest rates, the outflow of low-cost deposits is accelerating, intensifying the interest rate competition for 'parking accounts (demand deposit accounts)' in the banking sector. Some commercial banks are attracting financial consumers with higher rates than internet-only banks.

According to the financial sector on the 3rd, the balance of demand deposits at the five major domestic commercial banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) stood at 673.3602 trillion KRW as of the end of last month. This is a decrease of about 5.1% (36.6034 trillion KRW) compared to the previous month. Demand deposits refer to deposits such as demand deposit savings and money market deposit accounts (MMDA) that depositors can withdraw and use at any time.

The decline in demand deposits is due to the recent base interest rate hike, which has led funds that had been parked in parking accounts to flow into time deposits and savings deposits. The balance of time deposits at the five major commercial banks increased by 27.3532 trillion KRW to 712.4491 trillion KRW as of the end of last month, surpassing 700 trillion KRW for the first time. As of June, the deposit interest rate (based on new contracts) at deposit banks was 2.73% per annum, reflecting an increase of 90 basis points (bp) from the beginning of the year (1.83%) (1bp=0.01%).

As demand deposits decrease, banks concerned about profitability deterioration are increasingly competing on parking account interest rates. Demand deposits, also called 'core deposits,' have lower interest rates than time and savings deposits, allowing banks to raise funds at lower costs, which significantly helps improve net interest margin (NIM).

Recently, some banks have started offering parking account interest rates that surpass those of internet-only banks. For example, KDB Industrial Bank's 'KDB Hi Non-face-to-face Deposit Account' offers up to 2.25% annual interest. This rate exceeds those of internet-only banks that led the parking account craze, such as Toss Bank (up to 2.0%) and K Bank (up to 2.1%), as well as SBJ Savings Bank's Cider Bank (up to 2.2%). Notably, the KDB parking account is popular because, unlike internet banks and savings banks, it has no preferential conditions or amount restrictions.

With fierce competition, some savings banks are responding by raising parking account interest rates to the 3% range. Welcome Savings Bank offers an annual interest rate of 3.0% on amounts up to 50 million KRW if certain preferential conditions are met, and OK Savings Bank applies a 3.2% annual interest rate on amounts up to 10 million KRW. A financial sector official said, "With interest rate hikes continuing at least until the end of the year, the outflow speed of low-cost deposits will accelerate for the time being," adding, "Banks may further raise parking account interest rates to attract core deposits and secure customers."

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