Brokerage firms’ deposit interest rate remains low despite rising base rates

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South Korean brokerage houses are being criticized for providing interest rates far below the benchmark rate for stock investment deposits despite their interest rates on credit loans are higher than those of banks.

According to data obtained by Lawmaker Yoon Chang-hyun from the Korea Financial Investment Association, only two of the top 10 brokerage firms by total domestic capital at the end of August had a deposit interest rate of more than 1 percent. The 10 companies are Mirae Asset Securities Co., Korea Investment & Securities Co., NH Investment & Securities Co., Samsung Securities Co., Shinhan Securities Co., KB Securities Co., Hana Securities Co., DAISHIN Securities Co., Meritz Securities Co., and Kiwoom Securities Co. A deposit interest rate is offered by brokerage firms on the cash that customers keep in their securities accounts to invest in other assets such as stocks. It is the interest paid on the balance not used for investment in a stock account instead of a cash management account (CMA).

The base rate has significantly increased significantly over the past two years, but the deposit interest rate has not changed much within the period. While the benchmark rate has increased to 3.5 percent from 0.75 percent since August 2021, the average interest rate for deposits at major brokerages rose by a mere 0.43 percentage point to 0.56 percent from 0.13 percent. The median rate among the top 10 brokerage firms also remained slightly higher at 0.4 percent, up from 0.1 percent. Shinhan Securities had the highest rate at 1.05 percent, followed by KB Securities at 1.03 percent, Mirae Asset Securities at 0.75 percent, and Merits Securities at 0.6 percent. It was the lowest at Kiwoom Securities at 0.25 percent.

Some in the financial investment industry maintain that deposits are not comparable to bank deposits as they are funds held in reserve for stocks. “Just as no one raises issue with the low interest on a payroll account, back deposit rates must be compared with CMA account rates,” an industry official said. “CMA account interest rates can go as high as 3.7 percent for special promotional products.”

But this argument is losing ground as brokerage firms have been earning more interest by managing deposits amid rising benchmark rates. The interest rate on stock deposits they keep with the Korea Securities Finance Corp. has sharply increased following the rise in the benchmark rate.

“It is time that we promoted competition among securities firms to pay lower interest rates on credit loans and higher rates on deposits,” Yoon said. In the meantime, an official from the Financial Supervisory Service said that a plan for improvement will be announced within the year.