The deposit interest rates at savings banks have dropped by more than 1 percentage point (P) since the beginning of the new year. Now, there’s only one fixed deposit offering an interest rate of 3.5% or higher. With banks reducing their deposit rates, savings banks also have room to lower theirs.
According to the Korea Federation of Savings Banks, the average interest rate for a one-year fixed deposit at savings banks was recorded at 3.2% as of the 24th. This is a decrease of 0.13 percentage points from 3.33% at the end of last year. The highest interest rate also fell from 3.60% at the end of last year to 3.50%.
The number of products offering deposit rates of 3.50% or higher has drastically decreased. At the end of last year, there were 43 one-year fixed deposit products offering at least 3.50% interest. Currently, only Cheongju Savings Bank has a product with a 3.50% interest rate remaining.
Deposit rates at major savings banks have dropped even further. The highest interest rate for a one-year fixed deposit at SBI Savings Bank, the industry leader, decreased from 3.25% at the end of last year to 3.0%, a decrease of 0.25 percentage points in a month. Similarly, Korea Investment Savings Bank lowered its highest interest rate from 3.4% to 3.25% in the same period, a reduction of 0.15 percentage points. Accuon Savings Bank also reduced its highest interest rate from 3.5% to 3.3%, a decrease of 0.2 percentage points.
As banks lower their deposit rates, savings banks have the capacity to do so as well. The deposit rates at savings banks move in correlation with bank deposit rates. To maintain competitive interest rates without incurring losses in interest margin, savings banks must set their rates slightly higher than banks.
Woori Bank lowered its basic interest rate for the ‘Woori First Transaction Preferential Fixed Deposit’ by 0.2-0.3 percentage points as of the 20th of the month. Gwangju Bank also reduced the basic interest rate for its ‘Mid-Term Termination Okay WA Deposit’ from 3.05% to 2.85% on the 17th. Jeonbuk Bank lowered the basic rates of eight deposit and savings products, including ‘JB Main Transaction Deposit’, by 0.1-0.35 percentage points on the 21st.
With savings banks limiting loan operations, there’s little incentive to maintain high-interest rates. The loan balance at savings banks has remained below 100 trillion won since May last year. By the end of November, the loan balance was 97.1075 trillion won, down by about 7 trillion won from 104.0936 trillion won at the end of 2023. At one point in 2022, the loan balance at savings banks reached 116 trillion won.
Savings bank deposit rates are expected to keep declining. The likelihood of a base rate cut within three months increased after the Bank of Korea decided to hold the base rate steady on the 16th. If the base rate is lowered, there’s a high probability that banks and savings banks will sequentially reduce deposit rates.
A representative from a savings bank stated, “Interest rates on major deposit products like fixed deposits and parking accounts are decreasing across the industry. Since it’s still challenging to resume lending, deposit rates are being adjusted to maintain the current deposit balance.”