The Bank of Korea has consecutively lowered its base interest rate, leading to a series of decreases in savings and deposit rates to the annual range of 2%. The savings enthusiasts, carrying large sums of money, are flocking to regional mutual financial institutions that offer temporary financing or special promotional events.
According to the financial industry on the 3rd, the 'Sh-eolssu' savings product sold at the Ulsan Suhyup headquarters on the 1st sold out in less than 30 minutes after its launch. With a maximum subscription period of 36 months and a deposit amount of up to 3 million won, the interest rate is as high as 6% per annum. On that day, customers trying to purchase the product caused long queues in the Suhyup application, leading to connectivity issues.
On the 27th of last month, Jeju Gosan Agricultural Cooperative started selling its regular savings product, but it disappeared from the product list the next day. The product had a subscription period of 12 months and offered the highest annual interest rate of 4% for a maximum of 5 million won. The savings enthusiasts are quickly sharing information about high-interest products and availability in various regions' mutual finance through various communities.
Mutual financial institutions such as NongHyup, Suhyup, credit unions, and Saemaeul Geumgo are independent entities for each branch and cooperative. For example, although they bear the name of the same NongHyup, the A NongHyup in Seoul, B NongHyup in Gwangju, and C NongHyup in Ansan are all different corporations. Therefore, the characteristics and interest rates of savings and deposit products sold by each cooperative or credit union vary.
In particular, regional NongHyup are launching high-interest special promotional products that allow customers from other regions to subscribe in order to activate each branch and enhance cash flow and non-face-to-face services. Even if each cooperative (credit union) releases just one per year, it results in over 3,700 special promotional products. Since savings enthusiasts in Seoul are browsing nationwide online, it is not uncommon to hear statements like, 'I am looking for regions I have never visited before to deposit money.'
In fact, the deposit balance of mutual financial institutions has been increasing since the Bank of Korea began lowering interest rates in October of last year. According to the Bank of Korea Economic Statistics System the previous day, the average deposit balance of mutual financial institutions, including credit unions and Saemaeul Geumgo, stood at 906 trillion won as of January of this year. The deposit balance increased by 2 trillion won in December last year and 4 trillion won in January of this year, suggesting significant movements in February and March of this year when statistics were not captured.
The thought that it's risky because it isn't a commercial bank is an old notion. Nowadays, savings enthusiasts are well aware that Saemaeul Geumgo, credit unions, etc., all offer deposit protection up to 50 million won per institution, and they are enrolling by dividing amounts among different cooperatives. There are also unique benefits of mutual finance, as members of mutual finance can have interest income tax (14%) exempted on principal amounts up to 30 million won. This is an advantage not found in commercial banks or savings banks. However, it is important to note that this 30 million won is cumulative across all mutual finance institutions.
Meanwhile, in some cooperatives, situations have arisen where large amounts of funds have flowed in after selling high-interest products, leading to requests to customers to cancel their contracts. Last week, Donggyeongju NongHyup requested subscribers again to cancel contracts, citing concerns of bankruptcy. Donggyeongju NongHyup, which sold high-interest savings at 8.2% per annum in 2022, faced about 900 billion won due to a clerical error, far exceeding the initial target of 10 billion won, and appealed for cancellations last year as well. A source in the mutual finance industry noted, 'While it is unlikely that the cooperative will actually go bankrupt, I am aware that employee welfare benefits and bonuses are currently being reduced due to difficult management conditions.'