Investors rush to savings accounts riding on rate hike
A 29-year-old office worker, surnamed Kim, had been putting most of his savings into stocks and cryptocurrencies over the past year, but recently decided to place his money in a savings account after banks introduced products with interest rates of more than 4 percent.
“It was a party until the first quarter of this year,” he said.
“I made a decent amount of money by investing in virtual coins on the back of the so-called bitcoin fever in January, and then shifted to stocks. Returns on my investment in Seoul stocks started deteriorating in May, and have yet to recover at this point. Now, pessimism is every- where. It’s boring, but I have decided to take a stand with a commercial bank savings account until the storm passes.”
Other investors are also shifting to current and savings accounts as an alternative to the nation’s sluggish stock market.
The recent base rate hike is another factor behind the trend since not only second-tier savings banks but also commercial lenders have introduced various current and savings accounts guaranteeing an interest rate of over 3 percent.
The Bank of Korea (BOK) raised the base interest rate by a quarter percentage point to 1.75 percent Nov. 30. The decision came after the central bank had maintained the key rate unchanged at 1.5 percent for a year since November 2017.
Reflecting the BOK’s decision, Shinhan Bank took the lead in raising deposit interest Dec. 3. The Shinhan Sebae Dream savings account offers a 3.6 percent interest rate for customers who open their first savings account with Shinhan.
Other commercial banks — NH NongHyup, the Industrial Bank of Korea and KB Kookmin Bank — also followed the trend by introducing similar products earlier this month.
Despite the growing popularity of savings accounts, returns on relatively risky investment, such as in stocks and equity funds, have yet to hit bottom amid the nation’s sluggish economy.
According to fund researcher FnGuide, the average return rate of the nation’s equity funds was -16.28 percent while domestic bonds funds, which are considered to be relatively stable, marked 2.4 percent as of Dec. 5.
The return ratio of overseas equity funds was also -8.83 percent in the meantime.
Experts say the BOK isn’t likely to raise rates next year due to the nation’s sluggish economy.
“I expect the nation’s key rate will stay unchanged next year,” said Meritz Securities analyst Yoon Yeo-sam said. “External factors as well as the ongoing downturn are expected to be prolonged for a while.”
The International Monetary Fund recently downgraded Korea’s economic growth rate next year to 2.4 percent in a recent research report.