Savings Bank Deposit Interest Rate Nears 4% Annual... Why Are Rates Rising?

Approaching 4% Range After Three Months
Due to Deposit Withdrawals and High-Interest Deposit Maturities
For Liquidity Securing Purposes

Savings banks' deposit interest rates are rebounding, approaching the 4% annual mark. This is interpreted as a move to secure liquidity in preparation for accelerated deposit withdrawals and the maturity of fixed deposits.

According to the Korea Federation of Savings Banks on the 20th, the average deposit interest rate of all 79 savings banks as of that day was 3.95% per annum (12-month maturity). Based on the same date, the rate showed a declining trend from 4.96% in January, 3.94% in February, and 3.74% in March, but it has been gradually rising since April (3.83%), reaching just below 4% in three months.

The number of deposit products with interest rates above 4% per annum has also increased compared to a month ago. As of the 20th of this month, among 325 fixed deposit products from all savings banks, 45% (146 products) offered rates above 4%, whereas last month it was 33% (100 out of 300 products). For example, OK Savings Bank's 'OK Jeonggi Deposit' rose from 3.5% to 4.11% per annum, and SangSangIn Savings Bank's 'BangBangBang Jeonggi Deposit' increased from 3.9% to 4.11% per annum.

This contrasts with commercial banks, which have been lowering deposit interest rates due to the base rate freeze and pressure from financial authorities. Savings banks are less affected by changes in the base rate compared to banks. Instead, they adjust deposit interest rates according to each institution's liquidity situation. When they want to expand loan operations, they raise deposit rates; conversely, they lower them.

The main reason savings banks are raising deposit interest rates again is to maintain deposit balances. The savings bank industry, which lost interest rate competitiveness due to deposit rate cuts, has recently seen rapid outflows of deposit funds. According to the Bank of Korea, the deposit balance of savings banks (based on month-end) has decreased by nearly 2 trillion KRW each month: 120.7854 trillion KRW in January, 118.9529 trillion KRW in February, and 116.071 trillion KRW in March this year.

On the other hand, the need to secure liquidity has increased. Since many fixed deposits mature in April and May, savings banks are trying to secure funds by raising deposit interest rates. Unlike commercial banks that can issue bank bonds, savings banks rely on deposits and savings for funding. A representative from a large savings bank explained, “Savings banks typically raise deposit interest rates ahead of months with many maturities. Especially because last year they competitively increased high-interest special deposit promotions, the required amount of funds has grown even larger.”

[Image source=Yonhap News]

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