De­pos­i­tors dis­mayed by fall­ing in­ter­est rates

The Korea Times - - FINANCE - By Lee Kyung-min [email protected]­re­atimes.co.kr

A man in his 50s sur­named Kim feels in­creas­ingly trou­bled every time he watches the news about fall­ing in­ter­est rates.

“The Bank of Korea (BOK) re­cently low­ered its key rate less than two months af­ter the last cut. And from what I have heard, it may cut the rate fur­ther in the com­ing months,” Kim said.

“This will shrink my in­ter­est in­come from money I have long put in sav­ings and in­stall­ment ac­counts at dif­fer­ent com­mer­cial and sav­ings banks — my ma­jor source of post-re­tire­ment in­come. I feel frus­trated,” he said.

The BOK cut its key in­ter­est rate by 25 ba­sis points to a record-low 1.25 per­cent Oct. 16, cit­ing sag­ging ex­ports and weak­en­ing pri­vate con­sump­tion amid mount­ing un­cer­tain­ties both at home and abroad.

It also left the door open for fur­ther eas­ing amid the deep­en­ing U.S.-China trade feud.

Kim added buy­ing high-risk, high­yield fi­nan­cial prod­ucts in­clud­ing de­riv­a­tive-linked funds (DLF) sold by banks or in­sur­ers is not an op­tion af­ter he saw many peo­ple his age stag­ing ral­lies in front of banks with picket signs read­ing: “You de­stroyed my post-re­tire­ment plan.”

Widely known as the DLF Fi­asco, many in­vestors who bought the de­riv­a­tives sold by KEB Hana and Woori banks lost their en­tire in­vest­ment.

The prod­ucts, whose re­turn is de­ter­mined by the per­for­mance of un­der­ly­ing as­sets such as in­ter­est rates and govern­ment-is­sued bond yields, ini­tially drew pop­u­lar­ity with a prom­ise of higher re­turn than bank de­posit in­ter­ests. How­ever, their re­turns plum­meted as the un­der­ly­ing as­sets un­der­per­formed ex­pec­ta­tions.

“I heard the banks are be­ing in­ves­ti­gated, but peo­ple say they may not get their money back. They say the in­vestors were also at fault for buy­ing with­out fully un­der­stand­ing the risks. I don’t want to lose my money and get blamed for it,” he said.

Kim is among many peo­ple near­ing re­tire­ment that will see their in­come de­crease as many com­mer­cial banks fol­low­ing the BOK rate cut are ex­pected to lower de­posit rates start­ing this week in line with cus­tom­ary prac­tice.

KB Kook­min Bank said it will lower its de­posit rate as early as this week, a move ex­pected to be fol­lowed by NongHyup Bank within this month.

KEB Hana, Shin­han and Woori banks have yet to de­cide, but they are likely to lower de­posit rates.

“We will have to keep mon­i­tor­ing the fi­nan­cial mar­ket. We do not have a spe­cific time­frame on it as of now,” a bank­ing of­fi­cial said.

More peo­ple who have long re­lied on in­ter­est from bank de­posits will see their in­come drop in the com­ing years, ac­cord­ing to Sung Tae-yoon, an econ­o­mist at Yon­sei Univer­sity.

“Low in­ter­est is com­mon in many other ad­vanced economies amid low growth. The de­posit in­ter­est in­come will not be the vi­able post-re­tire­ment plan it once was,” he said.

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