Consumers are increasingly considering where to invest their money as banks and securities firms compete for customers with high-interest special offers. Interest rates, which had hovered around 3% for some time, have risen competitively. As a result, the after-tax interest on a deposit of 10 million won can vary significantly depending on the product. Experts advise consumers to make careful choices, taking into account factors such as deposit protection and the duration of the investment.
As of today, eight comprehensive financial investment firms, including Korea Investment & Securities and Mirae Asset Securities, are selling issuance notes. Issuance notes are debt securities issued by securities firms based on their own credit, promising to pay back the principal and interest at maturity. Only firms with over 4 trillion won in equity that have received a separate 'short-term financial business license' from the Financial Services Commission can sell these notes.
With deposit rates rising from around 3%, high-interest products are being launched. Korea Investment & Securities is offering a special issuance note with a 5% annual interest rate for one-year terms and 4.7% for six-month terms, available until the end of this month. In the banking sector, SC First Bank has introduced a special one-year deposit product with a maximum interest rate of 4.05%, which applies a preferential rate if certain conditions are met on a base rate of 3.85%.
When considering interest income alone, fixed issuance notes are viewed as more advantageous than bank deposits. For example, if 10 million won is deposited for one year at a 5% interest rate, the after-tax interest, applying a general tax rate of 15.4%, would be 423,000 won. Assuming a bank deposit rate of 4.05%, the after-tax interest would be 342,630 won, making the issuance note's after-tax interest 80,370 won, or 23.5% more.
Safety is also a key comparison factor. Bank deposits are protected up to 100 million won, including principal and interest, per financial institution. In contrast, issuance notes are not covered by deposit protection, meaning investors could face principal losses if the issuing firm defaults or goes bankrupt. This highlights the need to consider interest rates, investment limits, early withdrawal conditions, and the credit risk of the issuing firm.
It is also important to consider how different securities firms manage their funds. Funds raised through issuance notes are typically invested in corporate loans, corporate bonds, and acquisition financing, with strategies varying by firm. Korea Investment & Securities primarily uses funds from issuance notes for acquisition financing, while Shinhan Investment Corp. invests in corporate loans and bonds.
The type of issuance note can also affect fund management. There is a significant interest rate difference between demand notes, which allow withdrawals at any time, and term notes, which require funds to be locked in for a set period. For instance, demand notes from Shinhan Investment Corp. offer an annual rate of 3.0%, while Korea Investment & Securities offers 2.85%, and KB Securities offers 2.60%, all lower than term note rates.
Investment limits should also be considered, as special issuance notes often have restricted limits. Currently, the highest interest rate for issuance notes is offered by Kiwoom Securities' special promotion for Hangul Day, but it has a limit of 1 million won, yielding approximately 12,267 won after tax for a three-month investment. The highest one-year rate from Hana Securities' new MTS launch special promotion also has a limit of 5 million won per person.
However, for long-term investments, bank deposits are seen as more stable. Jeju Bank's J Regular Deposit promises a 4% interest rate for a 24-month term, resulting in an after-tax interest of 676,800 won. Additionally, if the Bank of Korea raises its benchmark interest rate in the second half of the year, more deposit products promising higher returns are expected to emerge.
A financial investment industry official stated, "Since the savings bank crisis, oversight of securities firms has been strengthened, and there have been no cases of defaults or bankruptcies. However, consumers need to make rational decisions considering that issuance notes are not protected by deposit insurance."
* This article has been translated by AI.
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