Deposit Rates Fall Despite Two Rounds of Base Rate Hikes
According to the Bank of Korea's weighted-average interest rates for financial institutions in August (rates averaged to reflect transaction volumes), released on the 30th, commercial banks' lending rates rose 0.13 percentage points to an annual 4.40%, while time deposit and installment savings rates fell, widening the gap between the rates banks charge on loans and pay on deposits (the deposit-lending rate spread) for the first time in seven months. This means that although the BOK raised its base rate by 0.25 percentage points in both July and August, households' loan interest burdens have not eased, while returns on bank deposits and savings may only shrink.
The August figures released by the BOK on the 30th show that demand and other low-saving deposit rates fell 0.02 percentage points from the previous month to an annual 3.14%, turning back into decline. Time deposit rates dropped from 3.15% to 3.14%, and installment savings rates fell from 3.99% to 3.72%. Savings deposit rates on a new-transaction basis at banks held steady at an annual 3.21%, the same as the previous month. Although time deposit and installment savings rates declined, this was offset by a 0.05 percentage point rise in market-linked products such as certificates of deposit (CDs), which reached an annual 3.53%.
Kim Sung-jun, head of the BOK's financial statistics team, explained the decline in deposit rates, saying, "There was an unusual factor in which a particular bank attracted a large amount of short-term funds from a local government at low time deposit rates." He added that the drop in installment savings rates reflected a base effect, as the previous month's weighted average had jumped sharply due to a surge in high-yield Youth Future Savings accounts in July. He went on to say, "There are month-to-month fluctuations, but over the longer term, market rates have risen steadily since the second half of last year, driving lending and deposit rates at financial institutions higher as well."
Lending rates rose for both households and businesses, reflecting higher short-term market rates, among other factors. Household loan rates climbed 0.12 percentage points to an annual 4.76%. Mortgage rates rose 0.18 percentage points to 4.66%, while general credit loan rates rose 0.36 percentage points to 6.33%. Corporate loan rates also rose 0.10 percentage points to 4.30%, with loans to small and medium-sized enterprises and large enterprises recording 4.38% and 4.21%, respectively.
Household loan rates hit their highest level in 21 months since November 2024 (4.79%). Mortgage rates reached their highest in 45 months since November 2022 (4.74%), and credit loan rates their highest in 31 months since January 2024 (6.38%). The rate increases have added to households' interest burdens. The deposit-lending rate spread on a new-transaction basis widened to 1.19 percentage points, up 0.13 percentage points from the previous month (1.06 percentage points), marking the first expansion in seven months since February.
Meanwhile, the share of new loans carrying fixed rates increased. Last month, the fixed-rate share of new mortgages rose 3.4 percentage points to 35.3%, from 31.9% the previous month. The fixed-rate share of total household loans also rose 2.5 percentage points to 23.5%.
