Interest rates fall to near zero for 6 in 10 savings accounts

Six out of 10 accounts offered at commercial banks in South Korea offer near-zero interest rates on their deposits following the central bank’s key rate cut in May.

According to data released Wednesday by the Korea Federation of Banks, 31 out of 51 commercial banks’ 12-month deposit accounts provided their customers with yields of less than 0.5 percent as of June. This indicates that 6 out of 10 major banks’ deposit products do not even offer 1 percent interest a year on savings.

Earlier, KB Kookmin Bank cut its annual rate to 0.3 percent from the previous 0.6 percent soon after the Bank of Korea cut the base interest rate to a new record low of 0.5 percent from 0.75 percent in late May, causing others to follow suit. Last week, Shinhan Bank and NongHyup Bank drove down their interest rates to as low as 0.5 percent and 0.4 percent, respectively. Woori Bank started to lower the rate as much as 0.1 percentage point on Tuesday.

The move came as the Bank of Korea cut the base interest rate to a new record low of 0.5 percent from 0.75 percent in May.

The central bank’s rate cut even dragged down state-run banks’ deposit rates. Korea Development Bank as well as Industrial Bank of Korea slashed their rates to as low as 0.25 and 0.3 percent, respectively.

In addition, a total of 79 local savings banks changed their interest rates last week. OK Savings Bank lowered the annual rate of its six savings products, by 0.1 percent to 0.2 percent. The compound interest rate on savings accounts of SBI Savings Bank reduced to 1.65 percent from 1.8 percent.

Meanwhile, even the internet-only banks, which have boasted higher deposit interest rates and lower borrowing rates, embarked on the rate cut this week. K bank on Monday brought down the yields of its deposit programs to 0.75 percent from 1.05 percent and Kakao Bank recently opened discussions to adjust interest rates.

“As a growing number of local banks have cut their yields on savings accounts one after another, the interest rate nomads -- customers who migrate from bank to bank to pursue higher yields -- are struggling to find attractive investment outlets these days,” an official said.

By Choi Jae-hee (cjh@heraldcorp.com)