BOK rate cut spurs banks to lower interest on savings, time deposits — but not loans
Published: 03 Jun. 2025, 18:59
![A pedestrian passes by ATMs from banks including KB Kookmin Bank and Woori Bank in Seoul on June 3. [YONHAP]](https://koreajoongangdaily.joins.com/data/photo/2025/06/03/0d92c6e4-4a19-4cd0-843c-37701376700a.jpg)
A pedestrian passes by ATMs from banks including KB Kookmin Bank and Woori Bank in Seoul on June 3. [YONHAP]
Interest rates on savings and time deposits are falling fast, in line with the recent key interest rate cut by the Bank of Korea — but loan rates are bucking the trend due to pressure from financial regulators. Concerns are growing that the gap between lending and deposit rates, already at a record high, could widen further.
According to the Korea Federation of Banks’ consumer portal on Tuesday, the highest interest rate offered on one-year time deposits at the five major commercial banks — KB Kookmin, Shinhan, Hana, Woori and NH Nonghyup — has dropped to between 2.55 and 2.85 percent annually, all falling below the 3 percent mark.
Among all 19 member banks of the Korea Federation of Banks, the only product still offering more than 3 percent is the “Sh First Meeting Preferential Deposit” from Sh Suhyup Bank, which yields a maximum of 3.1 percent annually.
Last month, Banks quickly lowered their deposit rates following the Bank of Korea’s rate cut on May 29. On Monday, NH Nonghyup Bank cut interest rates on both lump-sum and installment savings products by 0.25 to 0.3 percentage points, and reduced the rates on housing subscription deposits and long-term installment savings by 0.25 percentage points. On the same day, Standard Chartered Bank Korea also reduced rates on five types of lump-sum deposit products by up to 0.2 percentage points.
The three internet-only banks — KakaoBank, K Bank and Toss Bank — which had been competing to attract deposits by offering relatively high interest rates on demand deposit accounts, also followed suit.
![The Bank of Korea headquarters in central Seoul [NEWS1]](https://koreajoongangdaily.joins.com/data/photo/2025/06/03/2073f371-735a-4568-b84d-4a2358686e58.jpg)
The Bank of Korea headquarters in central Seoul [NEWS1]
KakaoBank cut the base interest rates on three deposit products by 0.2 percentage points, from 1.8 percent to 1.6 percent annually, on May 31, immediately after the central bank’s rate cut. K Bank reduced the rates on its Plus Box and Code K time deposit products by up to 0.1 percentage points on May 30.
Toss Bank also lowered the base interest rates on its demand deposit and savings accounts — such as the Toss Bank Account and Toss Bank Savings — by 0.2 percentage points from 1.8 to 1.6 percent annually. The bank also cut the base rate on its one-year installment savings products, including Free Savings and Kids Savings, by 0.3 percentage points from 2.8 to 2.5 percent.
According to the Bank of Korea, the weighted average interest rate on new deposits at commercial banks has declined for seven consecutive months since October last year — when Gov. Rhee Chang-yong made his first key rate cut — from 3.37 percent annually.
The issue is that banks are hesitant to lower loan rates due to pressure from financial regulators concerned about the rise in household loans. If this continues, the gap between lending and deposit rates could widen even more, increasing the burden on consumers while boosting banks’ interest income.
![A market owner gives change to a consumer at a traditional market in central Seoul on May 27. [YONHAP]](https://koreajoongangdaily.joins.com/data/photo/2025/06/03/e538d870-59c4-47eb-91c3-d4a66bc4e13e.jpg)
A market owner gives change to a consumer at a traditional market in central Seoul on May 27. [YONHAP]
With a rush in loan demand ahead of the implementation of the third phase of the debt service ratio regulation in July, some banks have even raised mortgage rates. On Monday, Woori Bank increased rates on both variable and hybrid five-year mortgage loans by 0.06 percentage points compared to May 30. KB Kookmin Bank raised its variable mortgage rate by 0.04 percentage points.
“Normally, the spread between loan and deposit rates narrows when interest rates fall, but with loan regulations heavily restricting the growth of household lending, the effect of the rate cut on that spread is likely to be minimal,” said Kim Eun-gap, an analyst at Kiwoom Securities.
Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.
BY KIM NAM-JUN [[email protected]]
with the Korea JoongAng Daily
To write comments, please log in to one of the accounts.
Standards Board Policy (0/250자)