The Great Divide: Why Your Savings Are Earning Pennies While Your Loans Are Costing a Fortune

The ‘reverse run’ interest rate trend continues, with major banks rapidly lowering deposit interest rates and raising loan interest rates in anticipation of a base interest rate cut. This is because the financial authorities are putting pressure on banks to tighten the reins on soaring household loans, but the burden of loan interest rates is increasing for households and banks are increasing profits through interest business.

According to the Korea Federation of Banks announcement on the 1st, the household deposit-to-loan interest rate gap for the five major commercial banks (KB Kookmin, Shinhan, Woori, Hana, and NH Nonghyup) in September was an average of 0.734% points, widening further than the previous month (0.57% points). This figure is a compilation of only household deposit-to-deposit interest rate differences excluding policy microfinance (Sunshine Loan Bank, Sunshine Loan 15, Safety Net Loan II, and special guarantee for the lowest credit borrowers).

The deposit/loan interest rate difference by bank is 1.05% point for Nonghyup Bank, 0.98% point for Kookmin Bank, 0.68% point for Hana Bank, 0.53% point for Shinhan Bank, and 0.43% point for Woori Bank.

This year, the deposit-to-deposit interest rate gap of the five major banks peaked at 0.822% points in January and continued to fluctuate until May, maintaining the 0.7% point range. Afterwards, it fell to 0.51% point in June and 0.43% point in July, then began to increase again to 0.57% point in August and 0.73% point in September. As the ‘deposit-to-deposit interest rate gap’, which is the lending interest rate minus the savings deposit interest rate, increases, the profits for banks and the interest burden on households inevitably increase.

The reason why the difference between deposit and loan interest rates has increased is because loan interest rates are greatly overwhelming deposit interest rates. As the financial authorities put a sudden brake on household debt, which surged to over 20 trillion won in the first half of this year, banks are raising additional interest rates to suppress demand for loans. On the other hand, deposit interest rates continued to be maintained at a low level, reflecting downward factors even before the Bank of Korea decided to lower the base interest rate.

Last month, the average household loan interest rate, excluding policy microfinance, of the five major banks was 4.128%, up 0.19 percentage points from 3.938% the previous month. The average savings deposit interest rate was recorded at 3.394%, an increase of only 0.026 percentage points from 3.368% the previous month.