Bank of Korea Rate Hike Drives Savings and Time Deposit Rates Higher at Commercial Banks

Woori Bank Raises Deposit Rates by 0.25-0.30 Percentage Points from July 20
Other Banks "Considering Rate Increases"
Mortgage Rates Likely to Rise Further

With the Bank of Korea raising the benchmark interest rate by 0.25 percentage points for the first time in three and a half years, deposit and savings rates at commercial banks are expected to increase across the board. There is also a strong possibility that lending rates will rise further.

According to the financial industry on July 20, Woori Bank raised the interest rates on major deposit and savings products by 0.25 to 0.30 percentage points starting today.

Most deposit products, including demand and installment savings, saw their interest rates uniformly raised by 0.25 percentage points. The flagship products — WON Plus Deposit, Woori SUPER Fixed Deposit, Woori SUPER Installment Savings, and 12-month Free Installment Savings — went up by 0.30 percentage points. As a result, the rate for WON Plus Deposit (for terms of 1 year or longer and less than 2 years) changed from up to 2.90% to 3.20%, while Woori SUPER Main Transaction Installment Savings (1-year maturity) increased from a maximum annual rate of 3.55% to 3.85%. A Woori Bank representative explained, "The deposit product interest rates were adjusted by comprehensively reflecting market rates and product-specific conditions, and we will continue to offer competitive deposit products by closely monitoring market trends and customer demand."

Within the financial industry, it is expected that other commercial banks — Shinhan, KB Kookmin, Hana, and NH Nonghyup — will also move to adjust their deposit interest rates following the Bank of Korea's benchmark rate hike. However, since only one business day has passed since the announcement, the banks are reportedly still reviewing the exact timing and scale of their increases.

According to the Korea Federation of Banks' consumer portal as of July 20, the regular deposit interest rates (for 12-month maturities) at the four major commercial banks excluding Woori Bank currently range from a maximum annual rate of 2.60% to 3.30%. These include NH Nonghyup Bank's NH All One e-Deposit at 2.95%, Shinhan Bank's Shinhan MyPlus Fixed Deposit at 3.30%, Hana Bank's Hana Fixed Deposit at 2.90%, and KB Kookmin Bank's KB Star Fixed Deposit at 2.90%.

A representative from a major commercial bank stated, "Banks are expected to move toward raising deposit and savings interest rates, likely implementing increases this week or within the month. Although calculation formulas differ between banks, when the Bank of Korea raises the benchmark rate by 0.25 percentage points, deposit and savings rates typically rise by 0.2 to 0.3 percentage points, so we expect changes within that range this time as well."

With the Bank of Korea shifting to a tightening monetary policy, there is mounting upward pressure on fixed-rate mortgage interest rates at banks. Although the possibility of a benchmark rate hike had already been reflected in market rates, meaning lending rates had already begun to rise, further increases may need to be considered in the future. As of today, the upper end of fixed and mixed mortgage rates among the five major commercial banks — Shinhan, KB Kookmin, Hana, Woori, and NH Nonghyup — stands at 7.52% per annum, remaining in the mid-7% range. This is a 0.42 percentage point increase from 7.10% at the end of May, just a month and a half ago.

Variable-rate mortgage interest rates are also expected to be affected, albeit with a lag. The Cofix (Cost of Funds Index) — the reference rate for variable-rate mortgage loans — is calculated as the weighted average interest rate of funds raised by eight major domestic banks. When funding costs such as the interest rates on deposits, savings, and bank bonds change, these are reflected in the Cofix. When the benchmark interest rate increases and deposit rates rise, the cost of funding goes up, which in turn pushes the Cofix higher. Based on data from June 15, the Cofix for newly issued loans reached 3.05%, up 0.15 percentage points from May's 2.90%. As a result, major banks raised their variable-rate mortgage rates immediately on the next business day.

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