[Financial Essay] "Is My Deposit Safe in Financial Companies?"

Yonhap News

[Asia Economy Reporter Kim Min-young] Deposits placed in banks and other financial institutions are guaranteed up to 50 million KRW. However, each financial company has different “money pockets,” or funds set aside for depositor protection. Also, not all products labeled as deposits are protected. As the global financial market fluctuates and domestic recession signals continue, we take a look at the deposit protection system to answer the question, “Is my deposit safe?”

Deposits entrusted to banks, insurance companies, savings banks, and others are guaranteed by the government up to 50 million KRW. The government does not directly handle this task; it is carried out by the Korea Deposit Insurance Corporation (KDIC), established in 1996.

Established under the Depositor Protection Act, KDIC collects deposit insurance premiums from financial companies during normal times to build the deposit insurance fund. Currently, the premium rates differ by sector: 0.40% for savings banks, 0.08% for banks, and 0.15% for insurance, financial investment, and comprehensive financial companies.

KDIC carefully manages these funds and, in the event of a savings bank bankruptcy or bank failure, pays customers of the affected financial institution up to 50 million KRW including principal and interest.

If customers are worried about not receiving their money, it is advisable to keep deposits under 50 million KRW per financial company for peace of mind.

Protected deposit types include demand deposits such as regular deposits, corporate free deposits, special deposits, and checking accounts sold by banks; savings deposits such as time deposits, savings deposits, housing subscription deposits, and promissory notes; installment deposits such as fixed installment savings, housing subscription installment savings, and mutual installment savings; and foreign currency deposits. Retirement pensions and principal-protected money trusts are also protected. Financial products included in Individual Savings Accounts (ISA) that are subject to deposit protection are protected as well.

KDIC also protects deposit-type products subscribed through insurance companies and securities firms. For securities firms, the protected amounts include cash balances remaining in customer accounts not used for securities purchases, self-credit loan collateral, credit transaction account deposits, and credit extension collateral. Insurance products include personal insurance contracts, retirement insurance, and variable insurance contract riders.

Comprehensive financial companies cover issued promissory notes, promissory notes, and promissory note management accounts; savings banks cover regular deposits, savings deposits, time deposits, fixed installment savings, credit installment savings, promissory notes, and cashier’s checks issued by the Korea Federation of Savings Banks.

Banks’ negotiable certificates of deposit (CDs), repurchase agreements (RPs), securities firms’ beneficiary certificates, mutual funds, and money market funds (MMFs) are not covered. Additionally, investment products such as comprehensive asset management accounts, wrap accounts, equity-linked securities (ELS), and equity-linked warrants (ELW) are not protected deposits.

Details on protected and non-protected financial products can be found on the KDIC website.

Credit unions, fisheries cooperatives, local agricultural cooperatives, and forestry cooperatives are not covered by KDIC deposit insurance. Instead, they have separate safety measures. Each cooperative must establish a mutual finance depositor protection fund according to their founding laws. This fund guarantees up to 50 million KRW including principal and interest.

Saemaeul Geumgo also accumulates deposit protection reserves to safeguard customer assets. According to the Saemaeul Geumgo Act, this reserve pays depositors up to 50 million KRW per person. According to the Saemaeul Geumgo Central Association, the currently accumulated fund amounts to 1.72 trillion KRW.

The post office, operated by the Korea Post under the Ministry of Science and ICT, is a government agency. Therefore, post office deposits are guaranteed by the state for principal and interest regardless of the amount.

This content was produced with the assistance of AI translation services.