As deposit-type funds flow out more quickly due to a stock market tilt, savings banks have moved to raise deposit rates. Term deposit products in the 4 percent range have reappeared, and rates on demand deposits that allow free deposits and withdrawals are also rising to around 3 percent. Savings banks appear to be responding to the money move by emphasizing rate competitiveness.

According to the Korea Federation of Savings Banks, the average annual interest rate for 1-year term deposits at 79 savings banks nationwide was 3.74 percent as of June 26. That is the highest level since November 2024. The average savings bank term deposit rate has risen quickly this month as major savings banks continued to raise rates.

OK Savings Bank raised the rate on its non-face-to-face product, the OK e-Safe Term Deposit, to 4.5 percent a year on June 26. The branch-only OK Safe Term Deposit applies up to 4.5 percent a year when adding a preferential rate of 0.1 percentage point to a base 4.4 percent. Both are 3-year products with a floating rate applied every year.

It also raised rates on short-term term deposits. OK Savings Bank's non-face-to-face OK e-Term Deposit offers an annual 4.0 percent rate for subscriptions of at least 3 months and less than 7 months. The branch-only OK Term Deposit also offers up to 4.0 percent a year over the same period when adding a preferential rate of 0.1 percentage point to a base 3.9 percent.

Other savings banks are also joining the move to raise deposit rates. Welcome Savings Bank raised its term deposit rate for maturities of at least 12 months and less than 24 months by 0.3 percentage point, from a previous maximum of 3.3 percent a year to 3.6 percent. Acuon Savings Bank also raised rates across six key deposit products, including the Plus Rotating Term Deposit and the 3-UP Term Deposit. The Plus Rotating Term Deposit offers up to 3.6 percent a year when opened through the mobile banking app.

Rates on deposit products that allow free deposits and withdrawals are also rising. Competition to hold short-term idle funds is spreading to parking accounts and demand deposits.

SBI Savings Bank raised the rate on its Cider Demand Deposit Account sold through the Cider Bank app by 0.7 percentage point, from 2.0 percent a year to 2.7 percent. It also lifted the rate on its branch-only demand deposit account from 1.8 percent a year to 2.5 percent. DB Savings Bank raised the rate on its Dream Big demand deposit to up to 3.0 percent a year on deposits of up to 70 million won without conditions.

Welcome Savings Bank expanded the cap for applying preferential rates on its Welcome Main Transaction Account to 300 million won. Customers can receive up to 3.0 percent a year if they meet preferential conditions on a base rate of 0.8 percent. Acuon Savings Bank also raised the rate on its Acuon Mobile Free Deposit to up to 3.0 percent. The base rate was raised by 0.8 percentage point from 2.0 percent a year to 2.8 percent, and preferential rates of 0.1 percentage point each apply if customers meet conditions for new mobile banking sign-ups and Acuon Membership Plus enrollment.

Savings banks are raising rates again because they need to defend funding. With the recent stock market strength, funds that had stayed in deposits are moving to investment markets, and banks are also raising deposit rates, leaving savings banks needing to secure rate competitiveness.

The emergence of policy-related high-rate products is also stirring funding competition sentiment across the financial sector.

Banks have also shown signs of raising deposit rates. Jeonbuk Bank recently raised the top rate on its 1-year JB 123 Term Deposit to 3.70 percent a year from 3.41 percent. Gwangju Bank also raised the top rate on its Good Start Deposit to 3.66 percent a year from 3.27 percent. SC First Bank raised the top rate on its e-Green Save Deposit to 3.65 percent a year from 3.40 percent.

As bank deposit rates climb into the mid-to-high 3 percent range, the gap with savings banks has narrowed. Savings banks have attracted deposits by offering higher rates than banks, but rising bank rates inevitably increase pressure from customer outflows.

Expectations of a possible rise in market rates are also having an impact. An analysis says that moves to secure funds pre-emptively are emerging as the possibility of a base-rate hike next month is added. If rates rise, the burden of funding costs could increase, prompting efforts to secure a deposit base.

Savings banks are a sector with a high dependence on customer funding such as deposits. As it is difficult to use diverse market-based funding tools like commercial banks, competitiveness in attracting deposits is directly linked to the business base.

As rate competition continues, savings bank funding balances have recovered to the 100 trillion won range. According to the Bank of Korea's economic statistics system, savings bank funding balances totaled 100.66 trillion won as of end-April. It was the first time in 5 months that the balance returned to the 100 trillion won range.

For savings banks, raising rates is a double-edged sword. With burdens remaining due to steps such as resolving bad real estate project financing, a prolonged competition for high-rate funding could lead to pressure on profitability.

An industry official said, "With the money move driven by a strong stock market, higher bank deposit rates and expectations of rising market rates all overlapping, savings banks seem to be in a situation where they have no choice but to increase rate competitiveness." The official added, "However, as higher deposit rates lead to higher funding costs, it will become important to strike a balance between securing funding and managing profitability."