Savings Bank Deposit Rates Decline Again as 4.5% Products Disappear

The average interest rate for one-year time deposits at savings banks, which once approached 4%, has begun to decline again. This shift comes as funds that had flowed into the stock market are now returning to deposits, easing the pressure on securing deposits, while household loan regulations limit available investment options.

According to the Korea Federation of Savings Banks on August 9, the average interest rate for one-year time deposits across 79 savings banks nationwide is now 3.78%. This marks a decrease of 0.17 percentage points from 3.95% on July 8, when competition for deposits was at its peak.

High-interest products offering rates above 4% are also rapidly disappearing. The number of one-year time deposit products with a base interest rate of 4% or higher has dropped from 336 on July 8 to just 139 today. Products offering 4.5% interest have completely vanished, down from 38.

The savings bank sector had raised deposit rates in response to a 'money move' as funds exited to the stock market following the KOSPI index surpassing 9,000 in June. However, with the recent slowdown in the stock market, idle funds have started to flow back into deposits, leading to a reduction in rate competition.

Indeed, the deposit balance at savings banks is showing signs of recovery. According to the Bank of Korea's economic statistics system, the balance of mutual savings banks, which had fallen to around 98 trillion won in December of last year, rebounded to 100.66 trillion won in April and has remained above 100 trillion won in May.

The lack of sufficient lending opportunities is also cited as a reason for the easing of rate competition. With financial authorities continuing to manage the total volume of household loans, savings banks are finding it difficult to aggressively increase their loan assets. Even if they secure deposits by offering high interest rates, the inability to lend those funds could lead to increased interest costs on deposits, thereby straining profitability.

However, there remains a possibility that savings bank deposit rates could rise again. The decision by the Bank of Korea in October regarding any further increases in the base rate will be a key factor. Some analysts predict that the Bank of Korea may raise the base rate once more. If the base rate increases, market interest rates and the cost of funding for financial institutions will also rise, potentially prompting savings banks to raise deposit rates again.

Seo Ji-yong, a professor at Sangmyung University, stated, "With the total volume of loans being regulated, the lending capacity of savings banks is limited. Recently, the sector has also focused on maintaining soundness, making it difficult to actively expand lending. Consequently, it appears that the competition for deposit rates is being adjusted somewhat."