Last chance this year… If you put your money in, you will get 7% interest per year.

Kim (45), who lives in Osong, Cheongju, immediately joined Saemaul Geumgo with the union fee as soon as he heard there was a 7% annual savings account. I was worried about whether I should subscribe to the savings product of a mutual financial institution rather than a general bank, but I was glad to hear that it is possible to receive tax-free benefits up to 30 million won and to protect depositors (limit 50 million) back The Saemaul Geumgo Act.

Kim boasted, “I got a favorable interest rate by fulfilling some of the requirements of the safe, and considering tax benefits, I signed up for a product with an annual rate of 8% from commercial banks.”

Mutual finance, which refers to Saemaul Geumgo and credit unions, unit agricultural cooperatives, fisheries cooperatives, and forestry cooperatives, exempts interest income tax of up to 30 million earned for preferential tax savings together with union members and associate members such as Mr Kim.

Preferential tax savings offer this type of tax benefit to members over the age of 19. However, the special tax for rural areas of 1.4% is exempt. Accordingly, a tax rate of 1.4% is applied to the interest income generated until this year for the favorable tax savings of mutual funds. Considering that commercial banks’ general savings products were taxed at 15.4% during the same period, the tax benefit of mutual funds is more than 10 times greater.

This difference in tax benefits creates an illusion of interest rates. This means if you entrust 10 million earned to a commercial bank and receive a real interest rate of 4% per year (400,000 earned in interest) after one year, you need to find a product with a par rate of 4.73%.

To join the mutual finance tax savings account, you must first pay the union fee (10,000 to 100,000 won) and visit a mutual financial institution near your residence to open a deposit account and withdraw. An official from Saemaul Geumgo explained, “There is a mutual finance branch near the address or only subscribers are available at work.”

In the case of Saemaul Geumgo in the Seoul area, a favorable tax savings rate of 4 to 5% per year is provided, and products with interest rates of 7 to 9% are often offered through special sales in the provinces.

It is a variable that the interest income tax exemption for such mutual financial tax favorable savings ends this year. Although it is lower than commercial bank rates, the income tax interest rate will increase to 5% next year and 9% in 2024. As a result, bundles of money to receive tax benefits are pouring into mutual funds this year. The combined balance of deposits between Saemaul Geumgo and credit unions was 274.2 trillion won in June 2020, but broke the 300 trillion won mark in just one year and reached 356.2 trillion won in June 2022. During the six months of this year , the increase figure is 51.2 trillion won.

If you are over 65, you can enjoy tax-free benefits of up to 50 million earned per person through tax-free comprehensive savings. There is no separate product for this savings, but a tax exemption is applied to all products within the subscription limit when collecting deposits and savings in financial institutions. It is possible to join not only mutual funds but also commercial banks. The target audience is over 65, the disabled, people of merit in independence, disabled military and police officers, and recipients of basic livings.

It is a ‘honey hint’ that the tax-free limit increases to 80 million won if tax-free comprehensive savings subscribers get the benefit of favorable mutual financial tax savings (30 million won).

A financial industry official said, “Politicians are discussing extending the interest income tax exemption period for mutual financial products, but the full exemption is likely to expire this year.” One way to secure safe assets is to join the company.

There is also a view that the attraction of mutual funds lies in the investment account. Unlike tax-free comprehensive savings, investment accounts can only be registered for mutual funds. It is not a general savings product, but rather a dividend for members. The capital paid by financial users becomes the capital of mutual financial institutions such as Saemaul Geumgo.

Mutual funds are a way of paying dividends using the accumulated capital. The tax-free limit is 10 million earned, but it is noteworthy that the dividend income of 10 million earned is completely tax-free, not the principal paid by members. The dividend rate is set at the following year’s general meeting based on the year’s performance.

Saemaul Geumgo’s dividend yield in 2020 was 2.9%, but by 2021, it has risen to 3.33%. During the same period, the credit union’s dividend yield increased from 2.66% to 2.9%.

The problem is that it does not protect depositors because it is dividend income. If your financial institution goes bankrupt, you can lose money. As such, being an investment product, it carries a higher risk than other savings and savings products.

As it is an investment product for members, it is difficult to return money until the dividend is confirmed at the general meeting, so it is difficult for financial users to withdraw money. In other words, money is tied up for a year. According to Saemaul Geumgo, dividends are paid after the general meeting in February each year.

A financial sector official said, “The mutual fund investment account is suitable for rolling over funds that are not needed for a year.” “If a mutual financial institution goes bankrupt, you can’t get your money back. Very low,” he said.

[문일호 기자]
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