Deposit Interest Rates Suddenly Slow Down from Early 4%... Have They Passed the Peak?

Interest rates on fixed deposits at commercial banks and other financial institutions have sharply slowed down after peaking in the low 4% range. This is the result of a combination of factors including falling market interest rates, regulatory requests to curb deposit competition, and the removal of limits on bank bond issuance.

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According to the Bankers Association on the 15th, the one-year fixed deposit interest rates at the five major domestic commercial banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) were recorded at a high of 3.95?4.05% per annum as of the previous day. Compared to the beginning of this month (4.00?4.05%), the upper limit remained unchanged, but the lower limit dropped by 0.05 percentage points.

Even when expanded to all banks, except for Jeonbuk Bank JB 1 2 3 Fixed Deposit (4.37%), top-tier interest rate deposit products such as SC First Bank e-Green Save Deposit (4.35%) and Sh Suhyup Bank Hey Fixed Deposit (4.30%) maintained the same interest rate levels as at the beginning of this month. The move to raise deposit interest rates that took place in September and October to re-attract deposits secured during last year’s high interest rate period has come to a halt.

One of the reasons for the sharp slowdown in deposit interest rates is the regulatory request to restrain deposit competition. In response to the 'Legoland incident' last year, which caused a bond market freeze and triggered deposit competition, the authorities urged banks to adjust deposit interest rates and, at the beginning of last month, abolished the issuance limits on bank bonds to reduce incentives for raising funds through deposits.

According to the Korea Financial Investment Association, net issuance of bank bonds amounted to 7.5393 trillion won last month, but from the 1st to the 14th of this month, it reached 5.416 trillion won. As raising funds through bond issuance has become easier, banks have less need to compete for deposits by offering high-interest deposit products.

The stabilization of market interest rates has also been identified as a factor putting the brakes on deposit interest rates. Expectations that the U.S. Federal Reserve (Fed) will end its tightening cycle have spread, stabilizing the overall market including bonds. Reflecting this, the yield on AAA-rated 5-year bank bonds was 4.486% as of the 13th, showing a slight decline compared to the end of last month (4.770%).

Industry insiders also believe that deposit interest rates are unlikely to rise significantly. A representative from a commercial bank said, "Given that the authorities have publicly requested restraint on deposit competition and the removal of bank bond issuance limits, it is difficult for banks to raise deposit interest rates any further."

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