Fixed deposit balances at major lenders surge in November

(Lee Chung-woo)

Large sums of money are flowing into fixed deposit accounts at South Korea’s major commercial banks as market interest rates climb.

According to the country’s four major commercial banks KB Kookmin, Shinhan, Hana, and Woori on Wednesday, the outstanding balance of fixed deposits stood at 760.97 trillion won ($518.1 billion) as of Tuesday, an increase of 11.03 trillion won compared with the end of last month.

Fixed deposits increased by 11.12 trillion won in October alone, and they have already risen by nearly the same amount in just the first 10 days of this month.

The fixed deposit balance at the four major banks has increased by more than 22 trillion won in just over 40 days.

The financial sector attributes the recent surge in fixed deposits to a rise in interest rates.

Interest rates, which had fallen to the low 2-percent range, recently climbed to the upper 2-percent range following an uptick in financial-bond yields, prompting consumers seeking even a small amount of additional interest to flock to fixed deposits.

Banks are often criticized for quickly raising lending rates during tightening cycles while raising deposit rates—such as on savings and installment-savings products—much more slowly.

However, the recent surge in the stock market has led to a significant outflow of low-cost deposits—demand deposits and Money Market Deposit Accounts (MMDAs)—totaling 22 trillion won last month and more than 10 trillion won in the first 11 days of this month.

This has increased the need for banks to secure funds through fixed deposits.

The interest rates on representative 12-month fixed deposit products at the four major banks currently stand at around 2.7 to 2.8 percent.

However, unusual rapid changes are emerging, with some rates rising 0.05 percentage point in a single day.

Woori Bank’s flagship time-deposit product, the WON Plus Fixed Deposit, had an interest rate of 2.75 percent until Tuesday, but it jumped to 2.8 percent on Wednesday.

KB Kookmin Bank, which holds the largest fixed deposit balance, is considering launching a special promotional product this month to attract consumers.

Its current flagship product, the KB Star Time Deposit, offers an interest rate of 2.7 percent for a 12-month term, but the special-promotion version is expected to be set close to 3 percent.