A reversal phenomenon in short- and long-term interest rates is occurring in deposit rates. Currently, one out of two deposit products offers a 6-month interest rate that is equal to or higher than the 1-year interest rate. This is an unusual situation compared to the norm where banks set the highest rates for 1-year products. In anticipation of a potential interest rate cut, banks are lowering the interest rates for 1-year deposits to reduce interest expenses.
According to a Bank Association report on the 20th, among 28 deposit products that exist with both 6-month and 1-year maturities as of the 18th, a reversal in short- and long-term interest rates was found in 9 products. In these 9 products, the 6-month interest rate was 0.05 to 0.10 percentage points higher than the 1-year rate. There were also 5 products where the 6-month and 1-year rates were the same. A total of 14 products, which is half of all deposits, have either equal 6-month and 1-year rates or a higher 6-month rate.
The short- and long-term interest rate reversal appeared across all types of banks, including commercial banks, regional banks, and internet banks. For example, SC First Bank's e-Green Save deposits have a 6-month interest rate of 2.80% and a 1-year interest rate of 2.70%, meaning the 6-month rate is 0.10 percentage points higher. Gwangju Bank operates two deposits where the 6-month rate exceeds the 1-year rate. Internet banks KakaoBank and Kbank also each have a product where the 6-month rate is 0.10 percentage points higher than the 1-year rate.
Typically, banks set the highest interest rates for 1-year deposits. Deposits are the primary funding method for banks. When funds concentrate in products with maturities of less than 1 year, banks face increased liquidity changes. However, focusing on long-term products that exceed 1 year makes it difficult to respond flexibly to changes in the benchmark interest rate. If the benchmark rate rises while long-term deposit rates remain low, consumers may withdraw funds in search of higher-rate deposits. Conversely, if long-term deposit rates are high but the benchmark rate decreases, banks face a situation where the expenses on deposits exceed the income received from loans.
Market interest rates, which serve as the basis for banks' interest calculations, also have an impact. According to the Korea Financial Investment Association, as of the 18th, the interest rate for 6-month bank bonds (AAA) is 2.949%, higher than the 1-year rate (2.854%) and the 3-year rate (2.924%). As interest rates for long-term bonds are decreasing before those for short-term bonds, banks have begun to lower interest rates starting with long-term deposits of over 1 year.
The interest rate reversal phenomenon typically occurs in the early stages of interest rate cuts. The current short- and long-term reversal phenomenon is no different. The Bank of Korea lowered the benchmark interest rate twice in October and November of last year. There is a prevailing expectation that the benchmark interest rate will drop further this year. If banks believe the benchmark rate will decrease, they first reduce the rates of 1-year products among deposits. As the benchmark interest rate decreases in earnest, short-term product rates also follow suit. The reduction in the 1-year rate serves as a signal for decreasing bank deposit interest rates.
A bank official noted, "When preparing for a lower benchmark rate in the financial sector, we lower the 1-year deposit rate first." They added, "For now, we have lowered the 1-year rate first, but soon all deposit rates, both short- and long-term, will also decrease."