More savers move to ultra short-term deposits offering higher interest rates

2023.03.15 11:42:01 | 2023.03.15 11:46:54

[Courtesy of Korea Development Bank]이미지 확대

[Courtesy of Korea Development Bank]

Banks and other financial institutions are seeing a growing demand for ultra short-term deposits, including those with one-month maturities, as investors have increased standby money for investments in light of uncertainties over interest rates and the latest collapse of Silicon Valley Bank.

Korea Development Bank released a new term deposit on Monday, that provides maturity options from one month up to 60 months and guarantees a yearly 3.3 percent interest, even for a deposit for only one month. The 3.3 percent interest seems to be high enough to attract savers with ready cash, especially since some of the formerly popular demand deposit accounts that had higher interest, even for one-day deposits, have mostly disappeared from the market over the past few months.

Demand deposit accounts with high interest were popular at savings banks earlier, but any account that offers an interest of 3 percent is now rare. Market leader SBI Savings Bank Inc. used to set the rate for its demand deposits at a yearly mid-3 percent rate range, but on Friday it revised it downward to 2.8 percent. As of Tuesday, annual interest rates on demand deposit accounts at internet banks stood at 2.7 percent at K-Bank and 2.8 percent at Kakao Bank.

Some savers juggle multiple short-term deposits with one-month to three-month maturities.

“I’m using multiple ultra short-term term deposits, as interest rates for demand deposits are not satisfactory and I may need my money soon for my wedding,” one unnamed saver said. “These deposits are convenient because I can use it for my needs when they near maturity.”

One-month maturity deposits are not unseen at banks, but it is unheard of for banks offering a higher interest rate than non-banks on one-month term deposits. Earlier, Kakao Bank set its interest on one-month maturity deposits at 3 percent. The Industrial Bank of Korea has also set a minimum maturity on its term deposits for individual customers at one month, with a yearly 2.95 percent interest rate.

The gap between the interest that banks offer on deposits under six months and on those that mature at one year have also shrunk. Data from the Bank of Korea show that, as of January, a bank’s annual interest on term deposits that mature before six months was 3.61 percent, seeing a 0.49-percentage-point difference between that for term deposits that mature at one year, which was 4.1 percent. As of October last year, the gap was bigger than 1 percentage points, with under six month deposits having a lower interest.

Specialists say that high interest deposits may be able to attract some of the available cash that’s floating in the market. People with standby money, watching market movements and waiting for a benchmark rate change, may choose a safe asset amid the stock market shake up caused by the SVB collapse.

“Standby money seems to move to short-term deposits as they want to wait until they see how the Federal Open Market Committee meeting goes later this month,” said the deputy head of the Gangnam Private Banker Center at KB Kookmin Bank.

Starting next month, customers will have more options as banks and non-banks can now offer installment term deposits with maturities as short as one month. Under the revised regulations of financial institution’s interest rates, banks and other institutions can now provide one-month installment term deposits, lowered from the earlier minimum of six months. In revising the regulations, the central bank’s Monetary Policy Board took into consideration the growing demand for short-term deposits and savings accounts.

By Myung Ji-ye and Chang Iou-chung

[ⓒ Pulse by Maeil Business Newspaper &, All rights reserved]