Low-Cost Deposits Down 37 Trillion Won in a Month... Parking Account Competition Heats Up

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[Asia Economy Reporter Yu Je-hoon] As savings and deposit interest rates rise to the 3-4% range, the biggest hit is to low-cost deposits at commercial banks. Since these deposits significantly contribute to bank profitability and are also called "core deposits," banks are actively responding by competitively raising the interest rates on parking accounts (demand deposit accounts with flexible withdrawal) to prevent the outflow of low-cost deposits.

According to the financial sector on the 4th, 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.

Low-cost deposits refer to demand deposits (such as regular savings and checking accounts) and market-rate flexible withdrawal deposits (MMDA), meaning deposits that depositors can withdraw and use anytime they want. While these accounts allow withdrawals at any time, regular savings or salary accounts typically offer relatively low interest rates of 0.1-0.2%, and flexible withdrawal accounts offer around 1-2%.

The reduction in low-cost deposits is due to the rise in savings and deposit interest rates. As the Bank of Korea raised the base rate by 125 basis points (1bp=0.01%) compared to the end of the previous year, banks quickly increased savings and deposit rates, causing funds that had been waiting in flexible withdrawal accounts amid sluggish asset markets to rapidly flow back into savings and deposits. A commercial bank official said, "Due to the sluggish asset market since the beginning of the year, funds that had been staying in parking accounts and observing the market are recently moving to savings and deposits due to the higher interest rates."

In response, banks are competitively raising parking account interest rates to secure low-cost deposits. For example, KDB Industrial Bank's 'KDB Hi Non-face-to-face Deposit Account' has been offering up to 2.25% annual interest since mid-last month, with no preferential conditions or amount limits. This surpasses Toss Bank (up to 2.0% annually, within 100 million KRW), which sparked the parking account craze since the end of last year, and K Bank (up to 2.1% annually, within 300 million KRW), which recently overtook Toss Bank. It is also higher than some secondary financial institutions like SBJ Savings Bank's Cider Bank (up to 2.2%).

As the first-tier banks intensify their pursuit, some savings banks are responding by raising parking account interest rates to the 3% range. Welcome Savings Bank offers 3.0% annual interest on amounts up to 50 million KRW if certain preferential conditions are met, and OK Savings Bank applies 3.2% annually 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 also 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.