Low Rates Lead to a Rush From Long-Term Deposits

With annual deposit rates falling to the 5 percent level, the number of long-term time deposit accounts with maturities of more than a year are shrinking fast, while short-term deposits of six months or less are escalating.

Hanvit Bank said Monday that the number of bank accounts in time deposits with maturities of more than a year dropped 2.7 percent in March over February. Funds in time deposits also declined to 12.37 trillion won ($9.31 billion), down 2.2 percent from the end of February. Time deposit accounts with maturities of less than six months rose 1.9 percent. At Hana Bank, long-term time deposits fell 2.7 percent in March, but short-term deposits rose marginally. "Investors are also putting maturing long-term deposits into demand deposits, money market funds and short-term products sold by investment trust companies," said Kim Yo-hwan, a public relations officer at Hana Bank.

"Because of low deposit rates, customers whose long-term time deposits matured have been reluctant about renewing their maturities into long-term ones," said another commercial banker. "Individual investors are having difficulty finding places to invest their money, so they are just storing their money in short-term financial products and watching the interest rate movement carefully."

by Choi Hyeon-chul