Bank deposits rebound as higher rates draw funds back

ATM machines from Korea's major banks are seen in Seoul, Sunday. Yonhap

A 31-year-old office worker in Seoul surnamed Lee says she has recently stopped putting new money into stocks and instead plans to park her spare cash in a bank deposit.

"Most of my investments are in semiconductor stocks like Samsung Electronics and SK hynix, and I'm in the red," she said. "After seeing some banks offering deposit rates of more than 3 percent, I decided to move some cash from my brokerage account and other spare funds into a one-year deposit."

Lee is among a growing number of investors shifting money back into bank deposits as lenders raise deposit rates following the central bank's latest interest rate hike.

The Bank of Korea (BOK) last Thursday raised its benchmark interest rate by 0.25 percentage points to 2.75 percent, marking its first increase in three and a half years.

Commercial banks have since lifted deposit rates above 3 percent for the first time in more than a year.

KB Kookmin Bank said Wednesday it would raise rates on major deposit and savings products by up to 0.3 percentage point. The rate on its flagship one-year KB Star Deposit will increase to 3.2 percent from 2.9 percent.

The move follows Woori Bank's decision earlier this week to raise rates on its key deposit products by 0.25 to 0.3 percentage points. Shinhan Bank has also raised rates on its deposit products by as much as 0.4 percentage point.

According to data from the Korea Federation of Banks, Wednesday, the average rate on one-year time deposits offered by 19 banks stood at 3.21 percent, up 0.17 percentage points from a month earlier.

The higher rates are already drawing money back into banks.

Outstanding time deposits at the country's five largest lenders — KB Kookmin, Shinhan, Hana, Woori and NH Nonghyup — stood at 965.29 trillion won ($651.9 billion) as of July 15, up 15.9 trillion won from the end of June, according to industry data. The increase was the largest monthly gain since May last year, when deposits grew by 18.4 trillion won.

The latest inflows suggest a reversal of the so-called "money move" seen earlier this year, when retail investors pulled cash out of their bank accounts and poured it into stocks amid the benchmark KOSPI's rally.

According to the Korea Financial Investment Association, investor deposits held at securities firms — often viewed as cash waiting to enter the stock market — fell to 112.5 trillion won as of Monday, from 120.1 trillion won at the start of the month.

Industry officials expect demand for deposit products to remain strong as investors turn to relatively safer products amid stock market volatility.

"As banks are expected to adjust deposit and savings rates in line with the BOK's tightening cycle, these products can become more attractive to customers seeking stable returns amid heightened market volatility," a banking industry official said.