Deposit Interest Rates 'Plummet' as Market Funds Leave Savings Accounts

Reducing Interest Rates and Seeking Investment Opportunities

On the 9th, when major commercial banks lowered their fixed deposit interest rates from the 5% range to the 4% range, the fixed deposit interest rates were displayed on an electronic board at the entrance of a bank in Seoul. Photo by Jinhyung Kang aymsdream@

[Asia Economy Reporter Yu Je-hoon] As the average interest rate on regular deposits at commercial banks has fallen to the 3% range, idle funds in the market are leaving deposit accounts. The financial sector interprets this as an increase in financial consumers who, faced with the declining appeal of deposit products, are either engaging in "interest dieting" by repaying debts or seeking new opportunities through stock investments.

According to the financial sector on the 12th, the total deposit balance of the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) stood at 1,870.0581 trillion won as of the end of last month. This is a decrease of 7.3862 trillion won compared to the previous month (1,877.4443 trillion won).

By type of deposit, the balance of regular deposits was 822.25 trillion won, down 6.1866 trillion won from the previous month. The balance of regular installment savings was 36.8367 trillion won, a decrease of 394.3 billion won compared to the previous month.

The balance of demand deposits, including Money Market Deposit Accounts (MMDA), decreased by 35.9835 trillion won to 588.6031 trillion won. Although demand deposits offer relatively low interest rates, their free withdrawal feature classifies them as "investment standby funds."

The financial sector views the decrease in deposit balances as also related to borrowers' debt repayments. With the asset market still highly uncertain and the appeal of deposit products, once considered an alternative, declining, there is a growing sentiment of "let's pay off debts now."

An official from Bank A said, "It is difficult to track the cash flow of individual borrowers one by one, but internally, the decrease in demand deposits from December last year through January this year is understood to be linked to loan repayments," adding, "As deposit interest rates stabilize downward, this trend is expected to intensify as regular deposits subscribed to last year mature."

Financial consumers turning their attention to asset markets such as stocks are also gradually increasing. According to the Korea Financial Investment Association on the 12th, as of the 1st, investor deposit balances stood at 51.5217 trillion won, up about 7 trillion won from the yearly low of mid-January (44.1599 trillion won).

An official from Bank B said, "Although many investors are still chasing the tail end of relatively high deposit interest rates, depending on their preferences, some high-net-worth individuals are increasing their investment proportions in stocks, especially overseas stocks, as regular deposit interest rates remain in the 3% range," adding, "There are also quite a few who are looking for investment opportunities in the stock market after earnings announcements and in the rapidly selling real estate market in the second half of the year."

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