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Individual savings account fever subsides

The popularity of individual savings accounts has apparently withered here on lower-than-expected rates of return, a year after the much-hyped debut of the investment vehicle, data showed Monday.

The number of ISAs in South Korea peaked at 2.4 million in November last year and declined to 2.39 million in the following month and 2.36 million in January of this year, according to the Financial Services Commission.

An ad for an individual savings account in a file photo (Yonhap)
An ad for an individual savings account in a file photo (Yonhap)

It also decreased by around 16,000 last month to total 2.34 million as of March 3.

"The number of ISAs decreased some 60,000 between December and March 3, 2017," the regulatory commission said.

ISAs were introduced here as part of the government's efforts to help individuals increase their wealth with a one-stop scheme.

Customers can benefit from tax exemptions on up to 2.5 million won ($2,180) of capital gains from their investment held for at least five years, plus lower commissions and fees.

Two types of ISAs are available. One is "trust-based," which allows customers to choose specific investment products themselves.

The other is "entrusting-based," which leaves financial services firms responsible for managing assets.

In the early months, banks and securities firms rushed to sell ISAs with aggressive marketing. It led to a surge especially in the number of so-called empty ISAs with 10,000 won or less in deposits.

The authorities regularly make public the average return of entrusting-based products.

The rate stood at 2.08 percent as of end-January, lower than interest rates provided for deposits at local savings banks.

"The ISA market is in the doldrums in general amid lower-than-expected returns," a bank official said. "There's a perception among workers at financial firms that ISAs, which are a policy product, are just a tentative sale product."

The FSC, however, said it's still too early to ignore ISAs.

The entrusting-based products, of which return rates are formally released, account for only 11.4 percent of total ISAs, with 88.6 percent being trust-based, it stressed.

Besides, it added, ISAs are a long-term investment vehicle going forward three to five years.

Meanwhile, the combined amount of the deposits in existing ISAs jumped to 3.64 trillion won as of March 3, a more than five-fold increase from 66 million won recorded when ISAs were introduced here a year ago. (Yonhap)

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