Savings banks join race to offer over 4% rates on 6-mo maturity deposits

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Korean savings banks are attracting short-term funds from the market by offering high interest rates of over 4 percent on 6-month maturity deposits, providing an option for savers looking for higher returns. The move comes as the savings bank sector faces challenges, recording losses in the first quarter of the year.

On Monday, OK Savings Bank launched the “e-Safe App Plus Regular Deposit 6,” allowing customers to lock in an interest rate of 4.41 percent for just a 6-month period. This plan requires a 3-year commitment, with the interest rate adjusted every 6 months. After the initial period, customers can still receive the promised interest rate if they choose to withdraw their funds prematurely.

JT China Savings Bank also joined the race, announcing a 4.4 percent interest rate on its 6-month maturity deposit plan, offering about 186,000 won ($7,650) in interest after six months on a 10 million won ($7,650) deposit.

The local savings bank industry has been grappling with a difficult business environment, leading them to explore strategies to prevent capital outflow.

As a result, they have turned to shorter-term deposits to reduce interest expenses. Notably, the interest rates on 1-year maturity regular deposits at major savings banks have fallen to levels comparable to or even lower than those offered by leading commercial banks. To mitigate the burden of interest costs, savings banks are moving to attract funds through savings accounts and short-term deposits, according to an industry insider.

Until recently, only one out of the country’s 79 savings banks offered high-interest rates on 6-month maturity deposits. However, as of August 7, that number has increased significantly, with 10 savings banks now competing in this space. According to Korea Federation of Savings Banks, the average interest rate on 6-month maturity regular deposits in the sector was a mere 2.85 percent as of the beginning of August, but it has risen to 3.07 percent by August 7.

The market has also been impacted by the continued decline in deposit balances at savings banks this year. According to the Bank of Korea, savings banks’ deposit balances fell by more than 6 trillion won, from 120.79 trillion won at the end of January to 114.56 trillion won at the end of May.

This trend contrasts with other mutual financial institutions, such as cooperative banks for fisheries ad agriculture, which experienced a growth of 10 trillion won or more in their deposit balances during the same period.