Starting from September 1, the deposit protection limit will be increased from 50 million won to 100 million won. The Financial Services Commission has decided to assess the market impact of raising the deposit protection limit.
On the 22nd, the Financial Services Commission announced that six presidential decrees, including the revised enforcement decree of the Deposit Protection Act concerning the increase in the deposit protection limit, were approved at a Cabinet meeting and will take effect in September. The deposit protection system guarantees depositors a certain amount of deposits in the event of a financial institution's bankruptcy. This is the first increase in the deposit insurance limit in 24 years since 2001.
The deposit protection limit for not only banks, savings banks, insurance, and financial investment sectors protected by the Korea Deposit Insurance Corporation (KDIC) but also for mutual finance protected by each central association according to individual laws will also be raised to 100 million won. Starting September 1, if financial companies or mutual finance associations face bankruptcy and are unable to pay deposits, depositors will be protected up to 100 million won.
Principal-protected products such as deposits and savings will have the principal and interest protected up to 100 million won, regardless of the time of subscription. Products like funds, where payouts are linked to operational performance, will not be protected. Retirement pensions, pension savings, and insurance payments will also be protected up to 100 million won.
Since May, the Financial Services Commission has been monitoring the market impact of raising the deposit protection limit in collaboration with related ministries and agencies. As depositors are reallocating deposits to financial companies with relatively higher interest rates, some financial companies may experience difficulties in liquidity and soundness, and thus, the balance of deposits is being monitored closely. If deposits flow into savings banks and mutual finance sectors with relatively higher interest rates compared to banks, the soundness management of the second financial sector will also be strengthened to prevent high-risk loans and investments.