Deposit Rates Rise, But Loan Rates Climb Even Higher

In response to the Bank of Korea's recent interest rate hike, major commercial banks have begun to raise their deposit rates. While this is welcome news for depositors, the increases vary by product. In contrast, mortgage and credit loan rates have surged even more significantly, increasing the interest burden for borrowers.

As of July 22, KB Kookmin Bank has raised the interest rates on its key deposit products by 0.20 to 0.30 percentage points. This adjustment follows the Bank of Korea's decision to increase the benchmark rate by 0.25 percentage points on July 16.

The interest rate for the flagship 'KB Star Time Deposit' with a one-year maturity has risen from 2.90% to 3.20%, marking the first time it has returned to the 3% range since February of last year. The maximum rate for the 'KB Clear Sky Savings' product will also increase from 3.25% to 3.45%.

However, the increases are not uniform across all products. For the KB Star Time Deposit with a maturity of 24 months or more, as well as the KB Golden Life Pension Deposit and KB Clear Sky Savings, the increase was limited to 0.20 percentage points, which is 0.05 percentage points lower than the benchmark rate hike.

Shinhan Bank has also raised the basic interest rates on 13 types of fixed-term deposits, including the 'Shinhan S Dream Time Deposit,' by 0.20 to 0.40 percentage points. Major savings products such as the 'Alsol Savings,' 'Shinhan Smart Savings,' and 'Shinhan MY Junior Savings' have seen a 0.20 percentage point increase. Woori Bank has raised the interest rates on its key deposit products, including time deposits and Woori Free Savings, by the same 0.25 percentage points as the benchmark rate increase.

While deposit rates have begun to rise following the benchmark rate increase, loan rates have already surged significantly. Banks preemptively raised mortgage and credit loan rates in response to rising market rates and a tightening of household loan management policies before the benchmark rate hike.

As of July 21, the fixed-rate mortgage rates at the five largest banks ranged from 4.79% to 7.52%. Compared to the end of May, the lower end has increased by 0.53 percentage points, while the upper end has risen by 0.42 percentage points. This increase is up to 2.1 times the benchmark rate hike of 0.25 percentage points. During the same period, the upper limit for variable-rate mortgage loans has also climbed to 6.58%.

The increase in credit loan rates has been even more pronounced. The credit loan rates at the five largest banks now range from 4.72% to 6.27%, with the upper limit rising by more than 1 percentage point since the end of May. While deposit rates have generally increased by 0.20 to 0.30 percentage points, loan rates have risen much more rapidly.

There are concerns that if the Bank of Korea raises the benchmark rate again this year, the upper limit for mortgage rates could enter the 8% range. Although the increase in deposit rates may slightly boost interest income, the burden of interest payments for borrowers could grow significantly.

A financial industry official stated, “If deposit rates are raised significantly, the banks' funding costs will increase, which could ultimately lead to higher loan rates. Banks will adjust their rates based on the speed of loan growth and repayment levels.”