Subscription Savings Interest Rate Rises... From 1.8% to 2.1% in 6 Years

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[Asia Economy Reporter Kim Min-young] The interest rate applied to the Housing Subscription Savings, which had been frozen for over six years, will be raised by 0.3 percentage points (p). As deposit interest rates at commercial banks have reached 4-5% per annum and savings deposits have appeared with rates up to 10%, the government seems to be addressing the gap with market interest rates. However, the policy fund procurement interest rate, which was set to be fixed until the end of this year, is also likely to rise next year, increasing the interest burden on the homeless and low-income households.

On the 8th, the Ministry of Land, Infrastructure and Transport announced that it will raise the interest rates on Housing Subscription Savings (Chungyak Savings) and National Housing Bonds by 0.3%p. Accordingly, the interest rate on Chungyak Savings will increase from the current 1.8% to 2.1%, and the issuance interest rate on National Housing Bonds will rise from 1.0% to 1.3%. The applied interest rate on Chungyak Savings has been fixed at 1.8% per annum (based on deposits held for over two years) since August 2016, drawing criticism for not reflecting current realities.

In fact, the ineffectiveness of Chungyak Savings combined with the housing market slump has led to a decline in the number of subscription account holders. According to Korea Real Estate One Chungyak Home statistics, the number of Housing Subscription Savings subscribers (accounts) surpassed 27 million by the end of May, but began to decrease from the end of July (27,019,253 people) and fell back to the 26 million range (26,969,838 people) by the end of September.

A decrease in Chungyak Savings subscribers also affects the operation of the Housing and Urban Fund. The fund is raised through Chungyak Savings, National Housing Bonds, and other means, so if the outflow and decline of Chungyak Savings subscribers continue, the fund size will shrink. The Housing and Urban Fund is used for various housing welfare projects such as constructing rental housing, supporting home purchases for the homeless and low-income households, and providing low-interest loans for jeonse (long-term deposit) funds.

The interest rate on Chungyak Savings will be implemented within this month, and the National Housing Bond interest rate will be applied starting next month. Applying the increased interest rate means that a subscriber with a deposit amount of 10 million KRW will receive an additional 30,000 KRW in annual interest. In the case of purchasing and immediately selling National Housing Bonds worth 10 million KRW, the burden will decrease by about 150,000 KRW (as of the end of October).

However, the interest rates on policy loan products may also increase next year. To guarantee the raised Chungyak Savings interest rate, the fund must compensate for it, and unless the number of Chungyak Savings subscribers significantly increases, loan product interest rates must also be raised to maintain balance. Considering this situation, the Ministry of Land, Infrastructure and Transport decided to freeze loan interest rates until the end of this year.

Kwon Hyuk-jin, Director of the Housing and Land Office at the Ministry of Land, Infrastructure and Transport, said, "Although this interest rate increase does not reach the recent base rate level, it was comprehensively considered to enhance the benefits of Chungyak Savings subscribers, reduce the interest burden on fund borrowers, and maintain the fund's financial soundness. We will carefully review whether to further adjust procurement and loan interest rates early next year, considering the interest rate situation and fund balance."

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