[Investment Trends] "Looking for a Short-Term Alternative to Deposits?"... Spotlight on CMA

CMA Accounts Surpass 40 Million

2.07 Million Newly Opened This Year

Securities Firms Raise CMA Interest Rates

As the domestic stock market faces a period of correction and the upward momentum slows, Comprehensive Asset Management Accounts (CMAs) are drawing attention as ideal products for short-term funds. Another investment point of note is that securities firms are raising CMA yields to attract funds that had recently been moving back to banks.

According to the Korea Financial Investment Association on October 1, as of September 28, the number of CMA accounts stood at 40,117,770, surpassing the 40 million mark. This milestone comes about four years after exceeding 30 million accounts in 2022. Compared to the beginning of this year (January 2), when there were 38,046,680 accounts, approximately 2.07 million new accounts have been opened. The total account balance also rose from about 100 trillion won at the start of the year to 106.8 trillion won.

A CMA is a demand deposit account that can be opened at a securities firm. Like ordinary bank accounts, funds can be freely deposited, withdrawn, or transferred, but a key feature is that it offers an annual interest rate of about 2 to 3% even if money is deposited for just one day. This makes it attractive for investors who want to earn higher interest than a regular demand deposit account but wish to avoid having their funds locked up for a certain period, as is the case with time deposits at banks. However, unlike bank accounts, CMAs are not protected under the Depositor Protection Act. Most CMAs invest in government or public bonds and high-credit short-term securities, so the risk of principal loss is considered low.

CMAs are categorized by the way they provide interest. Securities firms invest customer funds in products such as promissory notes and repurchase agreements (RPs) to generate interest income. The most popular type is the RP-based CMA, as it is the default for non-face-to-face account openings. In this type, the funds deposited by investors into the CMA are used to obtain returns from RPs backed by high-grade bonds such as government and financial bonds, and the earned interest is paid out to the customer.

The promissory note-based CMA invests in promissory notes, which are short-term financial instruments issued based on the credit of the securities firm itself. Unlike the RP-type, which uses high-grade bonds as collateral, the promissory note type is unsecured and relies on the securities firm's own credit rating, which generally results in slightly higher interest rates than the RP-type. Only large securities firms with self-owned capital of 4 trillion won or more are eligible to issue promissory notes, so there are limits on which firms can offer these products. Recently, as more securities companies such as Samsung Securities and Meritz Securities have been licensed for the promissory note business, the number of promissory note-based CMAs is expected to increase.

The MMW (Money Market Wrap) type CMA is a product whereby investors' funds are deposited with Korea Securities Finance Corporation (KSFC), known as the “bank of securities companies,” to earn interest. This product is both secure and generally offers a high-interest rate. However, it cannot be opened online, which means accessibility is relatively low. To convert a standard CMA to the MMW type, customers must visit a branch. Only at Korea Investment & Securities, due to its designation as an Innovative Financial Service by the Financial Services Commission, can customers complete online registration for an MMW account following a remote briefing.

In response to the “money move” back to banks amid rising interest rates, securities companies are raising CMA rates. Mirae Asset Securities increased the yield on its promissory note-based CMA from 2.40% to 2.60% per annum as of August 31. KB Securities raised the interest rate on its promissory note-based CMA from 2.35% to 2.60% per annum and also increased the RP-type yield from 2.25% to 2.50% per annum.

In the current climate of rising interest rates, yields for MMW-type CMAs have also increased. Korea Investment & Securities raised the rate for retail MMW-type CMAs from 2.37% to 2.62% in July following a base rate hike by the Monetary Policy Board, and further increased the rate to 2.87% in August. Samsung Securities, Hanwha Investment & Securities, and others have also raised their MMW-type rates by 0.25 percentage points in line with the base rate increases.

An industry official in the financial investment sector stated, “Financial institutions are raising product rates in line with the base interest rate hikes,” adding, “CMAs are suited for temporarily holding idle funds and flexibly reallocating them according to market conditions, rather than locking in large sums for long periods.”

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