High rates, low returns: 'Bonus' interest not as much as it seems for promotional savings accounts

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High rates, low returns: 'Bonus' interest not as much as it seems for promotional savings accounts

Published: 13 May. 2025, 09:50 Updated: 13 May. 2025, 18:32

Audio report: written by reporters, read by AI

An interest rate notice posted at a bank in Seoul on Dec. 16, 2024 [NEWS1]

Banks are flaunting flashy savings accounts with eye-popping interest rates for kids in May, but tight restrictions and tiny deposit limits mean the payoff is often barely worth the hype.

A parent of a kindergartner surnamed Choi recently abandoned plans to open a children’s savings account. While the bank advertised rates of up to 8 percent per year, a quick calculation showed the deal was much less generous than it promised to be.

“To qualify for that rate, your child had to be the fourth or more in the family, receive child benefits into this account multiple times and either be on basic welfare or have a disability,” Choi said. “We have an only child, so we’d only get around 3 percent interest. And even then, the maximum deposit was limited to 300,000 won [$210] per month.

“Even if we hit the deposit ceiling every month, we’d earn just 58,000 won a year after taxes.”


'Bonus' rates

Banks are rolling out family-oriented savings products in May to mark Family Month in Korea. May includes Children’s Day, Parents’ Day and Teachers’ Day.

Some products include Woori Bank’s “Woori Nerisarang Savings” and BNK Busan Bank’s “I Sarang Savings.”

Some banks are also launching promotions offering annual interest rates as high as 10 percent if customers meet certain criteria, such as using affiliated credit cards, saving micro-amounts daily or participating in sports-linked savings schemes.

ATMs in Seoul on Nov. 1, 2024 [YONHAP]

But the high interest rates are often unattainable for most, and the monthly deposit limits are so low that the actual benefit is minimal. Critics say these products are “all sizzle, no steak,” created mainly to attract customers with flashy numbers.

Take NH Nonghyup Bank’s “NH Nonghyup Child Benefit Savings,” for example.

Marketed as a savings product aimed at countering the country’s falling birthrate, it offers a maximum interest rate of 6.2 percent for a 12-month term.

The account is only available for children under the age of 7, and to get the full 3.5 percent bonus rate, the family must receive child benefits through a Nonghyup account and have at least three children.

Even then, the monthly deposit is capped at 100,000 won. A full year’s worth of maximum deposits would yield only 40,300 won in interest before taxes — or just 34,093 won after taxes.

An analysis of 10 such savings accounts targeting Korea’s low birthrate found the average monthly deposit cap was just 330,000 won.

At banks like Nonghyup or iM Bank, the limit was 100,000 won, which works out to give less than 100 won in interest per day. Others that promise more generous caps often didn’t offer much better rates than standard savings products.

Near-impossible conditions

The stringent eligibility requirements for bonus rates are another sticking point.

KB Kookmin Bank’s “KB I Sarang Savings” advertises a top rate of 10 percent. But the base rate is just 2 percent, and customers must meet three bonus conditions to receive the full interest, including having at least four children under 18, receiving child benefits through Kookmin Bank for at least six months and qualifying as a basic welfare recipient, disabled person or single-parent household.

A view of the KB Kookmin Bank branch in Yeouido, western Seoul on Jan, 20, 2022. [YONHAP]

Some banks require customers to use affiliated products or services to qualify.

Sh Suhyup Bank’s “Sh Plus Alpha Savings” offers a 6 percent interest rate, but only if the customer spends over 1 million won on a Suhyup-issued credit card in the previous month. Even then, deposits are capped at 200,000 won per month.

Woori Bank’s “Woori Pay Savings” offers up to 7 percent per year, but customers must meet all of the following conditions: maintain a Woori Bank account as the payment account at 0.5 percentage points, have salary deposits for 10 months or more at 0.5 points, spend at least 300,000 won on Woori Pay within three months at 2 points and accumulate 2 million won or more in Woori Pay spending before maturity at 2 points.

With interest rates on savings accounts falling across the board, these products catch the eye with their promise of higher returns. But in reality, they cost banks relatively little while locking customers into using more of their services — a marketing tactic known as the “lock-in effect.”

“It's true that these promotions may seem like bait for marketing,” a commercial bank official said. “But among savvy savers who join multiple accounts to maximize their returns, they’re quite popular.”

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.
BY JEONG JIN-HO [[email protected]]