Deposit Utilization Rate at 0%... Securities Firms Trigger 'Reverse Money Move'

Average of 55 Companies Only 0.32%... KB Securities Highest at 1.03%
Usage Fee Rate Calculated Based on Korea Securities Finance Yield, Not Base Rate
Funds Flowing Out to Bank Accounts

[Image source=Yonhap News]

[Asia Economy Reporter Lee Myunghwan] Although the base interest rate has surpassed 3%, ushering in a high-interest-rate era, the usage fee rates that securities firms pay on investors' deposited funds remain in the 0% range. While commercial banks are launching deposit products with increasingly high interest rates, the low usage fee rates on deposited funds have raised concerns that securities firms may be causing a ‘reverse money move’ themselves.

According to the Financial Investment Association's electronic disclosure service on the 20th, as of that date, most domestic securities firms' usage fee rates on investor deposits were in the 0% range. The average usage fee rate disclosed by 55 securities firms was only 0.32%. Among these 55 firms, only four offered usage fee rates in the 1% range. KB Securities showed the highest rate at 1.03%, followed by Toss Securities (1%), Mirae Asset Securities (0.75%), and Shinhan Investment Corp. (0.55%). In contrast, Daishin Securities, SK Securities, and Hanwha Investment & Securities had rates as low as 0.1%.

The usage fee on investor deposits by securities firms is a concept similar to deposit interest at commercial banks. Securities firms deposit the amounts customers place in their securities accounts with Korea Securities Finance Corporation to earn income. After deducting costs such as labor expenses from this income, the remaining amount is paid to customers as the usage fee on investor deposits.

The usage fee rates offered by securities firms fall far short of the maximum 4% interest rates provided by domestic commercial banks' time deposits. According to the Bankers Association Consumer Portal, as of this date, the average base interest rate for 39 twelve-month time deposit products from 19 first-tier commercial banks was 3.45%. The highest rate is offered by Sh Suhyup Bank’s ‘Hey Time Deposit’ at 4.80%. Some internet-only banks also offer interest rates in the 2% range on so-called ‘parking accounts’ that allow free deposits and withdrawals. The Bank of Korea’s base interest rate, which influences bank rates, currently stands at 3%, and considering the U.S. Federal Reserve’s ongoing rate hike trend, further increases are expected.

As commercial banks’ interest rates rise, it appears that investors are moving their deposits from securities accounts with low interest rates to bank accounts, resulting in a reverse money move. Reverse money move refers to the shift of investment funds from risky assets like stocks to safer assets such as deposits or bonds. In fact, the amount of deposits entrusted to securities firms has been steadily decreasing. According to the Financial Investment Association, as of the 18th, investor deposits stood at 49.0695 trillion KRW, about 17% lower than this year’s average deposit amount of 59.1769 trillion KRW. Investor deposits peaked at around 74 trillion KRW earlier this year and have since been on a downward trend.

The securities industry explains that the usage fee rate on deposits is calculated based on the yield of Korea Securities Finance Corporation, not the base interest rate. The usage fee rate is determined after deducting various costs from the yield earned by depositing funds with Korea Securities Finance Corporation. However, even considering this, some argue that certain securities firms’ usage fee rates are excessively low. The deposit operation yield (interest rate) of Korea Securities Finance Corporation, which serves as the basis for calculating the usage fee rate, was 2.446% as of last September.

Ultimately, it seems difficult for securities firms to significantly raise usage fee rates citing profitability reasons. A securities industry official said, "Securities firms are unlikely to easily give up the usage fee on deposits, which is a source of revenue. Increasing the usage fee rate depends on the choices of the securities firms themselves."

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