Savings accounts gaining popularity as stocks drop

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Savings accounts gaining popularity as stocks drop

Savings accounts are gaining popularity as stocks remain volatile due to interest rate concerns and the threat of war in Ukraine.  
The total deposit balances at the five largest commercial banks — KB Kookmin, Shinhan, Woori, Hana, Nonghyup — was 673.84 trillion won ($560 billion) as of Feb. 15, up 11.88 trillion won from the end of December and up 42 trillion won from August, when the Bank of Korea started upping the rates.
Korea Exchange volume is near a two-year low.  
Average daily transaction volume was 20.65 trillion won last month, the lowest since May 2020, according to the Korea Exchange. The figure is less than half the 42.11 trillion won in January last year, when people were encouraged by the stock market boom and low rates, taking out loans to invest in stocks.  
Margin loans totaled 21.55 trillion won as of Feb. 11, according to the Korea Financial Investment Association, down 1.54 trillion won from late last year.  
With falls in share prices and concerns about additional drops, investors are seeing advantage to parking their cash in savings accounts, where principal is maintained. Interest payments are becoming more attractive as rates increase.
The Kospi is down 14 percent over the past year, dropping below 2,600 points intraday Jan. 28. The figure is down 18 percent as of Wednesday from the 3,305.21 point peak reached in July last year.  
The central bank raised rates three times since August last year, returning the rate back to the pre-pandemic level of 1.25 percent. The interest rate for term deposits rose accordingly. The basic interest rate for 14 depository products at the five major commercial banks is 1.33 percent annually as of Feb. 15 compared to 0.84 percent three months ago.  
"The number of people who asked about fixed deposits jumped notably this year," said Kim In-eung, a spokesperson for Woori Bank. "Those who turned to equities last year are returning to banks for term deposits or repaying loans due to pressure from the loan rates."
The tightened monetary policy could also reduce liquidity in the stock market.
“Volatility in the finance markets could be heightened if the Fed decides to raise rates at next month’s Federal Open Market Committee,” said Joo Myung-hee, a spokesperson for Hana Bank. Joo added that funds in the stock market could move to banks following the Federal Reserve’s decision in March.
“Rates for deposits could rise further in the second half of the year, so it would be wiser to sign up for fixed deposit products that matures within a year,” Kim from Woori Bank added.  

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