Interest Income Earners Suffer From Zero Rate
By Kim Jae-won
Staff Reporter
Amid the prolonged economic slump, interest income earners, mostly retirees, are suffering from a steep fall in monthly income, with the real interest rate falling to nearly zero percent.
According to the Bank of Korea (BOK), the average real interest rate ― nominal interest rate minus inflation and taxes ― dropped to 0.44 percent, the lowest level in five years in 2008. This means that if you deposit 100 million won at banks, you can get 440,000 won in interest per year.
The real interest rate stood at 0.75 percent in 2005, but rose to 2.08 percent in 2006 and 2.5 percent in 2007, but it fell drastically last year in line with a fall in key interest rates.
Kim Hee-ja, 59, a retired teacher, was surprised during her recent visit to a branch of Nonghyup in Miryang, South Gyeongsang Province.
"The interest on one-year term deposit was just 3.2 percent. Taking into consideration taxes and inflation, my interest income would be less than a penny,’’ said Kim, who taught health and counseling at public secondary schools for 30 years, before retiring in 2007.
"Three years ago, the interest rate was 4.2 percent and the non-taxable amount of deposit was also up to 20 million won. But now the interest rate keeps falling, and the limit has also narrowed to 10 million won.”
She is only one of the many retirees suffering from low interest rates. Many retirees in the nation suffer as the real interest rate is approaching zero.
The central bank said that the average nominal interest rate for term deposits stood at 3.19 percent in November, down 2.48 percentage points from January 2009, which was the lowest ever since it began compiling relevant data.
Consumer prices have risen 2.75 percent for the same period, so the real interest rate is just 0.44 percent. Little money is left after paying taxes, which accounts for 15.4 percent of earnings, to earn interest on.
The rate peaked in 1998 at 13.84 percent, and fell drastically to 7.12 percent in 2000. In 2004, it plunged to 3.78 percent, but rebounded to 4.34 percent in 2006.
Analysts said that the historic low key interest rate affected the low interest.
"Last year, banks lowered the deposit rate as the key rate has been kept at the record low level of 2 percent,’’ Kim Sang-hoon, an analyst at Hana Institute of Finance, said.
But they pointed out that banks shifted the burden of low interests on customers by keeping deposit rates low while raising rates on mortgages and other loans.
"Banks have kept deposit rates low, citing the record low policy rate. However, they hiked the spread on mortgages,’’ Jeon Hyo-chan, researcher of Samsung Economic Research Center, said.