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Why Savings Banks Are Raising Deposit Rates Again
After a quiet month of stagnant rates, Korean savings banks have started lifting annual deposit yields to around 3 %. The move mirrors the recent climb in market‑wide loan rates and reflects confidence that higher funding costs can still translate into solid net interest margins.
Key market drivers
- Rising COFIX index: In the past three months the COFIX (cost‑of‑funds index) has jumped 0.32 percentage points, nudging mortgage‑linked loan rates past the 4 % threshold.
- Tax‑advantaged retirement inflows: End‑of‑year contributions to Individual Retirement Pensions (IRP) and Individual Savings Accounts (ISA) are surging, thanks to credits of up to 16.5 % on IRP deposits and a 200 % tax exemption cap on ISA earnings.
- Competitive pressure from commercial banks: Major banks are already advertising 3 %‑plus fixed‑term products, prompting the second‑tier institutions to catch up.
Real‑World Example: Smart Savings Bank’s “e‑Road” Deposit
Smart Savings Bank recently raised its one‑year “e‑Road Fixed Deposit” from 2.81 % to 3.18 %. Within a week, three other mid‑size banks (CK, HB, and Cheongju) followed suit, each bumping rates by 38–48 basis points to the same level. Bank of Korea data shows that the average deposit rate across the sector now exceeds 3 % for the first time in two years.
What this means for savers
Higher rates improve the attractiveness of “safe‑asset” buckets within retirement portfolios. For instance, a 30‑year‑old contributing ₩10 million a year to an ISA could see an extra ₩300,000 in net earnings annually compared with a 2 % product, assuming the same risk profile.
Future Trends to Watch
1. Convergence of Deposit Rates Across Tiers
As loan rates continue to climb, the spread between “first‑tier” commercial banks and “second‑tier” savings banks is narrowing. Expect a race to the top where both categories offer similar high‑yield products, especially for term deposits exceeding six months.
2. Growth of Hybrid “Deposit‑Linked” Investment Products
Financial firms are piloting hybrid accounts that combine a guaranteed base rate (e.g., 2.5 %) with a performance‑linked upside tied to low‑volatility bond funds. These products aim to meet the demand of “pension ants” – retail investors seeking stable returns without the volatility of equities.
3. Increased Use of Digital Platforms for Rate Comparison
Tech‑savvy consumers are turning to fintech aggregators to compare real‑time rates. Platforms like FinanSmart already track over 150 deposit products, and their usage spikes by 35 % every December as users chase year‑end tax benefits.
4. Regulatory Outlook
The Financial Services Commission (FSC) is monitoring the aggressive rate hikes to ensure they don’t trigger risk‑taking in loan portfolios. A balanced policy could mean continued rate growth, but with tighter underwriting standards for real‑estate project financing.
FAQ
- Q: Are higher deposit rates sustainable?
- A: Yes, as long as loan rates remain above deposit rates, banks can preserve their net interest margin.
- Q: How do IRP tax benefits work?
- A: Contributions up to ₩9 million per year qualify for a tax deduction, potentially returning up to 16.5 % of the contributed amount during year‑end settlement.
- Q: Should I switch from a commercial bank to a savings bank?
- A: It depends on your risk tolerance and product preferences. Savings banks often offer higher rates for fixed‑term deposits, while commercial banks may provide broader service ecosystems.
- Q: What is the COFIX index?
- A: COFIX is the cost‑of‑funds index that tracks average borrowing costs for Korean banks, influencing the pricing of mortgage and corporate loans.
Ready to make the most of rising rates? Speak with a financial advisor today and discover the optimal deposit mix for your retirement goals.
Related articles: Savings Bank Deposit Trends in 2024 | Maximizing IRP & ISA Benefits
