In volatile markets, boring time deposits are in favor
Time deposits are steady sellers as rates rise and stocks remain weak.
With these products, savers can earn more from their money and eliminate most risk to capital, though time deposits with long durations can be unattractive investments if rates are rising quickly.
Total outstanding time deposits at five commercial banks — KB Kookmin, Shinhan, Hana, Woori and Nonghyup — was 672.7 trillion won ($540 billion) as of last Tuesday, up 7.3 percent from the end of January 2021.
A time deposit is an interest-bearing bank account, like a certificate of deposit, and savers must keep their money in the account, at the original rate, for the duration of the contract.
The average annual interest rate for 14 time-deposit products at the five commercial banks is 1.67 percent, according to the Korea Federation of Banks on May 15, compared to a rate below 1 percent last year. Savings banks are even offering 3-percent products.
"We are getting an increasing number of inquiries from wealthy people that avoided time deposits due to low interest rate," said Lee Seo-yun, a spokesperson for Hana Bank working at a Songpa branch in southern Seoul. "The faltering of stocks and cryptocurrencies that grew rapidly played a major role in the weakening of investor sentiment."
The U.S. Federal Reserve voted for a half point increase in May, and indicated further rate hikes this year to cool the hottest inflation in 40 years.
Fed minutes released last week indicate that officials are prepared to push for multiple 50-basis-point interest rate increases. It noted that policy may have to move past a "neutral" stance, in which it is neither supportive nor restrictive of growth.
The Bank of Korea unanimously voted to up the rate by a quarter percentage point last week to 1.75 percent. It was the fifth rise in the current round of monetary tightening, which began in August last year.
"The board will guide monetary policies focused on inflation for the time being," said Bank of Korea Gov. Rhee Chang-yong at the press conference last Thursday. He added that inflation may top 5 percent in May.
"Currently, a number of internal and external uncertainties, like the monetary tightening in the United States, lockdowns in China and the Ukraine crisis, are interlinked," said Yoon Jung-ah, a spokesperson for Shinhan Bank who works at a Gangnam branch in southern Seoul. She added that investors should be cautious until at least one or two of these unfavorable factors are resolved.
The Kospi is around 10 percent down from the beginning of the year, while Bitcoin is down by half from its peak.
BY YEOM JI-HYEON, JIN MIN-JI [firstname.lastname@example.org]