With annual time deposit rates surpassing 4% at major banks, financial consumers have more options for managing their savings. Although the Bank of Korea has kept the base rate steady, the possibility of future increases has led to increased deliberation on whether to secure a high rate for one year or opt for a shorter-term deposit.
According to the financial sector on October 24, Shinhan Bank's 'Super SOL Welcome Time Deposit' offers a maximum annual interest rate of 4.0% for a one-year term. The base rate is 3.6%, but customers can earn an additional 0.2 percentage points by using the 'Shinhan Super SOL' app and meeting salary transfer conditions. Customers who sign up by the end of the year will benefit from the app-related preferential rate, and those without salary transfer records for the past six months can receive an additional preferential rate by depositing over 500,000 won monthly for three consecutive months.
SC First Bank's 'e-Green Save Deposit' provides a base rate of 3.85% for a one-year term, with a 0.2 percentage point preferential rate for new customers, bringing the total to 4.05%. NH Nonghyup Bank's 'NH All-One Bank 10th Anniversary Deposit' also offers a maximum annual rate of 3.9%, with a base rate of 3.75% and an additional 0.15 percentage points for customers without any NH savings or deposits in the last six months.
Savings banks are also offering products with rates above 4%. OK Savings Bank's 'OK e-Regular Deposit' provides 4.1% for terms between six and nine months, and 4.05% for terms exceeding nine months but less than 15 months. The 'OK e-Safe App Plus Regular Deposit 6' starts with an initial rate of 4.1%. Although the contract lasts for three years, the interest rate changes every six months, allowing customers to withdraw without penalty if they align with the interest adjustment cycle.
How much difference does this make in actual interest earned? For a deposit of 10 million won at an annual rate of 4.0% for one year, the pre-tax interest is 400,000 won. After deducting a 15.4% income tax, the net interest is 338,400 won. For a 4.05% product, the net interest is 342,630 won, while for a 3.9% product, it is 329,940 won. If 10 million won is managed at both 4.0% and 4.1% for one year, the difference in net interest is only 8,460 won.
Choosing the right term is also crucial. A deposit of 10 million won at an annual rate of 4.0% for one year yields 400,000 won in pre-tax interest. In contrast, a 6-month deposit at 4.1% would yield 205,000 won. If the same principal is then deposited again for another six months, a rate above 3.9% would be needed to match or exceed the interest earned from the one-year deposit at 4.0%. This calculation assumes no reinvestment of the interest earned during the first six months.
If rates rise further, a strategy of opting for short-term deposits and reinvesting may be advantageous. Conversely, if deposit rates decline, locking in the current rate for one year may be preferable. However, it is important to note that an increase in the base rate does not necessarily lead to a proportional rise in deposit rates.
The Bank of Korea's Monetary Policy Committee decided to maintain the base rate at 3% this week, following two consecutive increases in July and August to assess their impact, while leaving the door open for further hikes.
Consumers should consider not only the highest rates but also the preferential conditions and timing of fund usage. Failing to meet salary transfer or new customer conditions may result in lower effective rates, and early withdrawal could lead to lower interest rates than agreed. The deposit protection limit is 100 million won per person, including principal and interest, for both banks and savings banks. Rather than trying to predict interest rate trends, it is essential to secure living expenses separately and choose deposit terms that align with the timing of fund usage.
* This article has been translated by AI.
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