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A bank automated teller machine (ATM). / Source: Yonhap News

With major banks raising savings and deposit rates this month, the top interest rates on key time-deposit products have climbed back into the 3 percent range. The move reflects rising market rates and intensifying competition for funds as banks brace for a wave of deposit and savings maturities toward year-end, while expectations for a Bank of Korea rate cut fade.

According to the financial sector on November 19, Shinhan Bank on November 17 raised the maximum rate on its “Shinhan My Plus Time Deposit” by 0.30 percentage point, from 2.80 percent to 3.10 percent per annum. A Shinhan Bank official said customers can receive a 3 percent rate “even if they are not new customers, as long as they meet the preferential condition of having their income deposited.”

Woori Bank also increased the top rate on its “Woori First-Transaction Preferential Time Deposit” on November 14 from 2.80 percent to 3.00 percent. The 3 percent rate, however, is available only to customers who did not hold a Woori Bank account as of the end of the previous year.

It is the first time in about six months that 3-percent time deposits have reappeared at major banks. Over the course of this month, banks have repeatedly raised rates on their flagship time-deposit products.

Data from the Korea Federation of Banks’ consumer portal show that, as of November 18, the maximum rate on one-year flagship time deposits at the five major banks (KB Kookmin, Shinhan, Hana, Woori and NH NongHyup) stood between 2.55 percent and 2.85 percent. Compared with October 21, when the range was 2.55–2.60 percent, the upper end has risen by 0.25 percentage point in less than a month.

In the process, a “rate inversion” has emerged, with bank time-deposit rates outpacing the average offered by savings banks. According to the Korea Federation of Savings Banks, the average rate on 12-month time deposits at 79 savings banks was 2.68 percent per annum as of November 18.

The main driver of higher bank deposit rates is the recent rise in market interest rates. As expectations for a Bank of Korea rate cut within this year have diminished—and some investors even start to price in the risk of a renewed tightening bias—the 10-year Treasury yield has climbed into the 3 percent range. The one-year bank bond yield, a key reference for deposit pricing, also jumped from 2.498 percent on August 14 to 2.820 percent on November 18.

Another factor is that a large volume of deposits and savings products mature in the fourth quarter, prompting banks to raise rates to secure funding and prevent outflows.

Rising deposit rates are quickly translating into larger time-deposit balances. As of November 17, time-deposit balances at the five major banks totaled 974.1643 trillion won, up 8.5954 trillion won from the end of October (965.5689 trillion won). That works out to an average daily increase of 505.6 billion won over roughly two weeks, the fastest pace since May, when the daily average rose by 593.4 billion won.

“Market rates keep moving higher, and that is pushing banks across the board to raise deposit rates,” a commercial bank official said. “Competition on rates to keep customers from leaving is becoming more intense.”