Deposit Rates Nearing 4%... Will "Ye-Tech" Investors Return Amid Roller-Coaster Stock Market? [Real Asset Strategies]

Increased Stock Market Volatility and Rate Hike Environment
Rising Concerns Among Individual Investors
Tier-1 Bank Deposit Rate Ceiling Reaches 3.75%
Savings Bank Parking Account Rates Also in the 3% Range
Further Rate Increases Possib

As volatility in the domestic stock market continues to increase, individual investors are becoming more concerned. Amidst this, banks have responded to the upward trend in market interest rates by raising the upper end of their deposit rates across the board. With the Bank of Korea sending signals of a potential base rate hike, the environment is already set for additional interest rate increases within the year. This has complicated the calculations for “Ye-Tech” (deposit + financial technology) savers who had previously shifted their money to the stock market during the KOSPI rally.

Will Tier 1 Banks Reach 4% Annual Deposit Rates... Upper Limit Rises to 3.75%

On July 1, data disclosed by the Korea Federation of Banks showed that the average interest rate (maximum rate for a 1-year term) for 35 fixed deposit products across 19 domestic banks stood at 3.18% per annum. There are 21 products offering a maximum interest rate above 3%, accounting for 60% of all products. Additionally, 12 products have a base rate—before any preferential rates—exceeding 3% per annum.

The highest rate is offered by Standard Chartered Korea's 'e-Green Save Deposit,' which reaches 3.75% per annum. The base rate is 3.45%, and new customers can receive an additional preferential rate of 0.3 percentage points if they deposit through an SC Korea account. On June 17, Standard Chartered Korea raised the base rate for this product from 3.35% to 3.45%. Starting today, the base rate for the First Fixed Deposit (1-year maturity) will also be raised from 2.55% to 3.0%.

Banks collectively raised their deposit rates over May and June, increasing the upper limit. All of the top five fixed deposit products with the highest published rates on the Korea Federation of Banks website saw their rates rise during this period. Jeonbuk Bank (JB Direct Deposit Account) increased its base rate by 0.26 percentage points on June 5, while Sh Suhyup Bank (Hey Fixed Deposit, 3.4%) raised its rate by 0.1 percentage points on June 24. Internet-only banks K Bank and KakaoBank also raised their fixed deposit rates at the end of May, now offering rates in the range of 3.4–3.41% per annum.

The background to these rate hikes is the rise in market interest rates. According to the Korea Financial Investment Association, the one-year (AAA) bank bond yield climbed from 3.182% in early April to 3.724% on June 29, an increase of more than 0.5 percentage points in three months. This is attributed to concerns about rising inflation driven by the prolonged Middle East conflict and higher oil prices, as well as the possibility of a base rate hike by the Bank of Korea in the second half of the year, which have pushed up government bond yields and, consequently, bank bond yields.

Among savings banks, the maximum fixed deposit rate for a one-year term has risen to 4.56% (Yuanta Savings Bank), with the average climbing to 3.78%. This is the highest level since January 2024. Compared to the 3.18% rate at the end of March, it has jumped by 0.6 percentage points in just three months. While this is partly a response to rising market rates, it also appears to be an aggressive move to raise rates in order to prevent capital outflows to the stock market.

Savings Bank Parking Account Rates Also in the 3% Range... Where Will Stock Market Sideline Funds Go?

With growing sentiment to stay on the sidelines due to an unstable stock market, attention is turning to where sideline funds will flow.

Many domestic banks now offer products with annual interest rates of 3% even for three-month terms. Sh Suhyup Bank leads with 3.4% per annum, while internet banks are offering rates of 3.0–3.2%. Among savings banks, large institutions like OK Savings Bank and SBI Savings Bank are offering rates of 4.0% and 3.8%, respectively.

Savings bank parking account products are also worth noting. Parking accounts offer higher interest rates than regular demand deposit accounts even for just a single day’s deposit, and they allow for free withdrawals and deposits, making them less restrictive than fixed deposits. Currently, major savings bank parking accounts are offering rates in the high 2% to 3% range. For example, Accuon Savings Bank offers a 3.5% annual rate, with interest paid quarterly. OK Savings Bank’s 'OK Parking Flex Account' applies a 3.01% rate for balances up to 5 million won, and a 2.4% rate for amounts between 5 million and 300 million won. SBI Savings Bank recently raised the rate on its ‘Cider Demand Deposit Account’ from 2.0% to 2.7%.

The interest rates on CMA (cash management account) products, which are demand deposit products offered by securities companies, are also attractive. Mirae Asset Securities' ‘CMA-RP Naver Account’ offers an annual rate of 2.5%, while Korea Investment & Securities’ CMA note-type product offers 2.4%. However, CMAs are not covered by deposit insurance.

Base Rate Hike Expected Within This Year... Deposit Rates May Rise With a Time Lag

If the Bank of Korea raises the base rate in July, deposit and other savings rates could rise further, albeit with a time lag. A base rate hike would push up market interest rates, increasing banks’ funding costs for bank bonds and prompting them to consider raising deposit rates to secure funding. In addition, to prevent funds from flowing into other financial products that are linked to market rates, there is a high likelihood that banks will increase deposit rates.

However, a variable is that the Bank of Korea's repeated hints at a rate hike have already been largely priced into market rates. Deposit rates are more sensitive to market rates than the base rate, so even if the Bank of Korea raises the base rate in July, if the market rate does not react, banks may change their strategies. A banking industry official said, "It is true that the environment is set for banks’ deposit rates to rise due to base rate hike signals and the resulting increase in market rates," but added, "Unlike lending rates, which move directly with market rates, increases in deposit rates are also influenced by banks’ strategic decisions, so we need to watch market developments to determine the timing of further hikes."

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