Major commercial banks in South Korea have seen their one-year time deposit rates soar to the mid-3% range, prompting speculation that some funds previously directed toward riskier assets like stocks may return to banks. The increased attractiveness of deposits comes amid rising interest rates from the Bank of Korea and heightened volatility in the stock market, leading to a growing demand for safer assets.
As of September 12, the representative one-year time deposit rates at the five largest banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup) have reached as high as 3.45%.
NH Nonghyup Bank announced that starting today, it will raise the interest rate on its 'NH All-One e-Deposit' by 0.20 to 0.30 percentage points, increasing the 12-month rate from 3.25% to 3.45%. A bank official stated, "This adjustment reflects the market interest rates influenced by the Bank of Korea's rate hikes."
Other major banks have also raised their time deposit rates in succession. Just two months ago, the representative rates for these banks were mostly in the high 2% range, but they have now uniformly risen to the 3% level.
The increase in deposit rates is attributed to the Bank of Korea's ongoing trend of raising its benchmark interest rate. In July, the central bank raised the rate from 2.50% to 2.75%, and again on August 27, it increased it to 3.0%, marking a total rise of 0.50 percentage points in just two months.
As expectations for further rate hikes have been reflected in market rates for financial bonds, banks are following suit with their deposit rates. Banks typically use the one-year financial bond rate as a key reference when setting their one-year time deposit rates. A financial industry source noted, "When the one-year financial bond rate rises, banks also consider adjusting their time deposit rates accordingly."
Alongside rising rates, there has been an influx of funds into deposits. The total balance of time deposits at the five major banks has recently surged to around 1,000 trillion won. According to the Bank of Korea, the amount of time deposits at banks increased by 20.3 trillion won in just one month.
Consequently, there is speculation about a 'reverse money move,' where funds that had previously flowed into riskier assets like stocks may shift back to bank deposits. Professor Kang Sung-jin of Korea University stated, "With inflation still high and the possibility of further rate hikes in the U.S., there is a chance that domestic benchmark rates may rise again. If that happens, deposit rates could also increase further."
However, Professor Kang added, "While uncertainty in the stock market may lead some funds to move to safer deposits, the current level of interest rates is not sufficient to trigger a large-scale reverse money move."
* This article has been translated by AI.
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