Banks follow BOK and raise rates
Commercial banks are starting to raise interest rates on savings and deposit accounts after the Bank of Korea issued its first rate hike in six and a half years on Thursday, while interest rates on loans have slightly fallen.
Shinhan Bank on Monday increased returns for its savings and deposit accounts, while other banks like KB Kookmin, KEB Hana and NH Nonghyup plan to do the same later this week.
Shinhan and KEB Hana said they would likely raise rates by 0.1 to 0.3 percentage points, while others are still considering the range.
Woori Bank, on the other hand, did not hesitate to raise rates, increasing returns for savings and deposit accounts between 0.1 and 0.3 percentage points almost immediately after the BOK’s move.
As a result, the maximum annual interest rate on savings and deposit accounts has risen from an average of 1.8 percent to 2.1 percent. The higher rates have been applied to customers who open new accounts from Dec. 1.
The country’s first internet bank, K Bank, started a promotion offering rates 0.15 to 0.2 percentage points higher than current rates on savings and deposit accounts through Jan. 2.
The maximum rate for a deposit account will go up from 2.2 percent to 2.4 percent, while the maximum rate for a savings account will be raised from 2.5 percent to 2.7 percent.
“On the hike of the interest rate, it will be a good opportunity for customers looking for a stable investment,” said Ahn Hyo-jo, a K Bank official.
However, customers will have to act quickly as the bank will close the promotion when the deposit accounts draw 100 billion won ($92 million) and 10,000 savings accounts are opened.
While rates for savings and deposit accounts have gone up, rates for mortgages have fallen.
Interest rates on mortgages that have fixed rates for five years and variable rates afterward fell between 0.07 and 0.08 percentage points on Monday compared to a week ago.
At KB Kookmin Bank, annual rates on these mortgages were between 3.65 and 4.85 percent last week.
But this week, they have dropped to between 3.58 and 4.78 percent. Compared to the end of October, interest rates on these mortgages have fallen 0.15 percentage points.
Usually when a central bank raises its key rate, interest rates on loans also go up. One of the reasons why mortgages may have defied that logic this week is because commercial banks in October already raised rates on loans in anticipation of the BOK’s decision. It only dipped this week because the bank’s governor, Lee Ju-yeol, took a conservative position about future hikes after raising the key rate by 0.25 percentage points to 1.5 percent.
“We will make an attentive judgment with regards to additional adjustments of interest rates,” Lee said on Thursday.
Variable-rate mortgages will remain unchanged until Dec. 16, when monthly rate adjustments will be made.
Analysts are warning against betting on low-interest loans as it has become clear that rates will likely see an additional increase next year.
“It is unlikely that [the BOK] will make additional interest rate hikes until March next year,” said Kim Jin-pyung, a fixed-income analyst at Samsung Futures. “However, interest rates in the market are likely to see a mild hike as inflation is on the rise and economic indicators show improvements.”
Analysts advise those seeking loans at banks to take them out before interest rates rise further and to consider fixed-rate mortgages with a maturity of 10 years or more.
Rates on these mortgages are currently 0.4 to 0.5 percentage points higher than those of variable-rate mortgages.
BY HAN AE-RAN [firstname.lastname@example.org]