The Decline of High-Interest Savings Accounts: Banks Lowering Rates and the Reasons Behind It

High-interest savings accounts, which once attracted significant attention with their attractive rates, are now gradually disappearing from the market.

High-interest savings accounts, which once attracted significant attention with their attractive rates, are now gradually disappearing from the market. Banks that previously offered these high rates are now reducing them, and new high-interest products are becoming scarce. This post explores the reasons behind this shift and its implications.

Recently, banks like KakaoBank and major commercial banks have been lowering the interest rates on their high-interest savings accounts. KakaoBank, for instance, reduced the maximum interest rate on its popular 'One-Month Savings' account from 8% to 7%. The '26-Week Savings' account also saw its rate drop from 6% to 5.5%. This trend is not limited to KakaoBank; other banks have followed suit. Woori Bank, for example, decreased the interest rate on its 'Woori First Regular Savings' account from 7% to 5.5%. Shinhan Bank, after selling out its 'Family Cooperation Savings' account with a top rate of 9% last November, has not introduced similar high-interest products since.

The main reason for these rate cuts is that banks no longer need to offer high-interest rates to attract deposits. KakaoBank’s deposit balance increased significantly from 47.1 trillion won at the end of last year to 53 trillion won by the end of March, with low-cost deposits making up a significant portion of this growth. This means that banks are receiving ample deposits without needing to compete on high-interest rates.

Additionally, the ongoing household loan restriction policies by financial authorities play a crucial role. Banks traditionally earn interest income by using the funds gathered from deposits to issue loans. However, with the current restrictions on household lending, banks are unable to issue as many loans as before, reducing the need for aggressive deposit collection.

In January of this year, the five major commercial banks reported to financial authorities that they planned to keep the annual increase in household loans below 2%. This policy has contributed to the decrease in the necessity for high-interest deposit products.

The decline in high-interest savings accounts is a natural response to the current financial environment and policy changes. While it may be disappointing for consumers, these adjustments are part of a broader strategy for banks to maintain profitability and ensure financial stability. As policies and market conditions evolve, consumers should remain aware of these changes and plan their financial strategies accordingly.