Special savings account for young Koreans to be set at 6% and above

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The special savings account, dubbed Youth Leap Account, for young South Koreans supported by the government will likely offer an annual interest rate of above 6 percent.

According to multiple sources from the financial industry on Thursday, the country‘s 11 banks, including the top five KB Kookmin, Shinhan, Woori, KEB Hana, and NH Nonghyup, announced an interim rate of above 6 percent for the supportive account, dubbed Youth Leap Account. The average rate is the sum of the basic rate at 3.5~4.5 percent and additional rates of under 2 percent.

The Industrial Bank of Korea (IBK) offered the highest rate of 6.5 percent. The top five lenders and Kyongnam Bank offered an annual rate of 6 percent while regional banks based in Daegu and Busan proposed 5.8 percent and Gwangju 5.7 percent.

The banks will announce the final rate on June 12 after adjustments based on the interim rates.

“The final rate will be set at a similar level to the interim rate or slightly higher given the expectations of the financial authority,” said an unnamed official from a commercial bank.

The Youth Leap Account is a financial policy product designed to support young depositors aged between 19 and 34 to save a large sum of funds of up to 50 million won ($38,576). If a depositor saves 700,000 won per month for 5 years, the government provides a monthly subsidy of 24,000 won. Low-income depositors are eligible for a prime rate of 0.5 percentage point.

The financial product was one of the key pledges President Yoon Suk Yeol made in his campaign.

Market insiders stressed the importance of attractive interest rates because many depositors usually terminate their accounts before maturity.

The policy product has a maturity of 5 years, relatively longer than those of other deposits, indicating that banks should offer more attractive rates to retain depositors.

The additional rates announced by the banks were set at 1~1.3 percent, which is at a similar level to additional rates offered by other commercial deposit products.

Banks are pressured to offer rates at high levels over the risk of margin loss amid falling market rates. The banks, nevertheless, are expected to set the final rate at 6 percent or above.

The financial authority expects as many as 3 million people to join the account.