Deposits pouring into Korea’s ‘savings banks’

Savers are turning away from major commercial banks and putting money in savings banks, favoring long-term deposits that guarantee higher interest rates.

According to data released by the Korea Deposit Insurance Corporation data earlier this month, the combined balance for fixed deposits and installment savings in 79 savings banks nationwide stood at 40.3 trillion won ($34.6 billion) in the third quarter of 2016, surging by 2 trillion won in a span of three months. In contrast, savings at the 17 commercial banks across Korea have decreased 0.02 percent to 867.4 trillion won compared to the second quarter.

Savings banks in Korea are similar to consumer finance companies in the West.

While the volume of money put into investments with maturity periods of less than one year went up 3.9 percent to 29 trillion won, those with maturity periods longer than a year increased 6.6 percent to 11.3 trillion.

“In comparison to regular banks, savings banks are considered less reliable,” said an official from the department of savings bank risk management at the Korea Deposit Insurance Corporation.

“For this reason, people have preferred short-term deposits or savings with them, which is why the total volume for short-term deposits or savings with one year or less maturity is a lot bigger. But according to the rate of growth during the third quarter, it may be the case that people are looking into long-term deposits or savings with savings banks to earn more interest. After all, they don’t have any better option.”

Interest rates for one-year fixed deposits at commercial banks as of January 20 range from 1.10 to 1.80, according to the Korea Federation of Banks. For installment savings, interest rates offered by commercial banks on one-year savings ranged from 1.20 to 1.85.

In comparison, the average rate for deposits with 24-month maturities in savings banks was 2.13 percent as of yesterday, data by the Korea Federation of Savings Banks showed. Fixed deposits with 36-month maturity periods offered slightly higher interest at 2.14 percent. The average interest rate for a one-year installment savings was 2.70 while that for a 36-month plan stood at 2.78 percent.

“We will have to wait and see if this is a one-time phenomenon or the current trend will continue for a while,” the official added.

The official said savings banks are more reliable since the savings bank crisis in 2011

BY CHOI HYUNG-JO [choi.hyungjo@joongang.co.kr]