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Stock funds top investor list

Higher interest rates at banks fail to draw in customers

July 04,2007
Money continues to flow from banks into stock funds as investors expect higher rates of return. Banks are offering special high-interest accounts with annual rates of 5 percent or higher, but they are not as popular as before.
Standard Chartered Korea First Bank began selling one-year certificates of deposit last month that had up to a 5.3 percent annual interest rate. However, the bank’s total deposit decreased by 20 billion won ($21.5 million) to 4.4 trillion won between the end of May and June 27. The bank tried to increase deposits by adjusting its prime rate but to no avail.
Hana Bank also began a promotion in April offering special savings accounts with an annual interest rate of 5.1 percent rate for those depositing 30 million won or more,attracting a mere 1.3 trillion won, only half of the bank’s target. The accounts require depositors to leave their money in the bank for at least one year.
“More people are earning high returns with stock funds, and time deposits with 5 percent or higher interest rates are overlooked,” said Baek Mi-kyung, a Hana Bank branch manager. “People do not like the fact that their money is tied up for one year with a low interest rate.”
Most consumers are choosing to put their money in money market funds or cash management accounts, which allow deposits and withdrawals at any time.
Money market funds surged to 58.1 trillion won on June 29 from 53.7 trillion won at the end of last year. Cash management accounts doubled to 16 trillion won in April from last year’s end. In the same period, savings deposits declined by 11 trillion won to 481 trillion won.
Last year, the growth of stock funds was slow, but this year money is flowing again. According to the Asset Management Association of Korea, stock funds began to surge in April, when 35.9 trillion won was invested. The amount increased to 36.2 trillion won in May and reached 39.7 trillion won in June.
The phenomenon is attributed to the recent market rally. Many funds are outperforming the Kospi, which grew at 21.6 percent.
“Investors who enjoyed high rates before are again investing more money in stock funds,” said Kim Hak-gyun, a researcher at Korea Investment and Securities.


By Choi Joon-ho, Ahn Hai-ri JoongAng Ilbo [jbiz91@joongang.co.kr]


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