3% Annual Interest Deposits Disappear, 1% Range Emerges... Investment Enthusiasts Lose Direction

Following the Bank of Korea's base rate cut, banks' deposit interest rates are rapidly declining. Deposit products with annual interest rates in the 3% range have disappeared, and some products have dropped to the 1% range. Savings bank parking accounts, which were relatively popular due to their higher interest rates, have also fallen to the low 2% range. As the appeal of existing products fades, the concerns of Yetech users (deposit + investment enthusiasts) are deepening. There is also speculation that idle funds with no place to go may flow into high-interest special promotion products offered by mutual finance institutions.

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According to the Bankers Association Consumer Portal on the 5th, the average base interest rate of 38 fixed deposit products (based on a 12-month maturity) currently sold by 19 major domestic banks is 2.64%, with the highest interest rate at 2.96%. The average interest rate of products sold last month was 2.98%. Even when preferential rates are applied to reach the highest interest rate, it is still lower than the previous month's average. In fact, 24 out of the 38 products fall into this category.

Fixed deposit interest rates have been falling one after another around the end of last month when the Bank of Korea cut the base rate by 0.25 percentage points. Banks determine deposit interest rates by comprehensively considering market interest rates and funding conditions. Market interest rates tend to follow the base rate trend. When the base rate falls, market interest rates and subsequently deposit interest rates also decline. According to the Bank of Korea, the fixed deposit interest rate of deposit banks (newly accepted amount, 1-year maturity) that exceeded 3.6% in June last year had already dropped to 3.06% as of January this year, following consecutive base rate cuts in October and November last year.

Consumers are feeling the rate cuts even faster. It has become difficult to find products with interest rates in the 3% range in the field. The interest rates of KB Kookmin Bank's 'KB Star Fixed Deposit,' Shinhan Bank's 'Solpyeonhan Fixed Deposit,' and Hana Bank's 'Hana Fixed Deposit' dropped from a maximum of 3.00% annually at the end of last month to 2.95%. KakaoBank also lowered its fixed deposit interest rate from a maximum of 3.2% to 2.85% starting from the 28th of last month.

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As interest rates rapidly decline, products with ultra-low interest rates in the 1% range have also appeared. BNK Gyeongnam Bank lowered the interest rate of its long-term (24-60 months) fixed deposit products from 2.2% to 1.95% annually. BNK Busan Bank cut the base interest rate of its special promotion fixed deposits by 0.45 to 0.55 percentage points, lowering the 12-month maturity product from 2.75% to 2.2%, and the 24-month product from 2% to as low as 1.55%.

Savings bank parking accounts are no longer attractive high-interest products. OK Savings Bank's OK Parking Flex Account interest rate dropped from 3.0% to recently 2.8% (for balances under 300 million KRW). SBI Savings Bank, the industry's leader, also steadily lowered the interest rate of its Cider Deposit and Withdrawal Account from 3.2% as of August last year to 2.25%.

As interest income can no longer be expected from existing deposit products and parking accounts, attention is turning to the future direction of idle funds held by Yetech users. A banking industry official said, "There had been money movements into gold, dollars, and virtual assets, but these markets are already overheated and market uncertainty is increasing," adding, "Due to a preference for safe assets, there is a possibility that funds will flock to high-interest special promotion products, potentially overheating the market."

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