As the number of securities firms offering commercial paper products with higher interest rates than bank savings and installment savings has increased to seven, investors now have more options. Competition among securities firms is expected to intensify further once Samsung Securities and Meritz Securities join soon.
Commercial paper refers to short-term notes maturing within one year issued by securities firms. Unlike bank products, they are not covered by deposit insurance, but because they are issued on the firms' own credit, the risk of principal loss is not significant unless the issuer faces a severe crisis.
Naturally, investors are focused on the level of interest rates. Looking at the commercial paper products rolled out by each securities firm, on-demand rates are around 2.5% a year, and term-agreement rates are around 3.5% a year. Term-agreement rates, which require committing funds for a set period, are higher than on-demand rates that allow deposits and withdrawals at any time.
Compared to the four existing commercial paper issuers—Mirae Asset, Korea Investment, KB, and NH Investment & Securities—the rates offered since the end of last year by new entrants Kiwoom, Hana, and Shinhan tend to be higher.
Kiwoom Securities offers an on-demand commercial paper rate of 2.45% a year and a one-year term rate of 3.25% a year. For Shinhan Investment, the on-demand rate is 2.50% a year and the one-year term rate is 3.30% a year. The rate on Shinhan Investment's "2030 special sale" commercial paper for young people ages 15–39 reaches 4.0% a year. Hana Securities, which is running an additional special sale, offers 3.4%–3.6% a year on commercial paper.
Existing firms that must compete with new issuers have moved to differentiate by rolling out installment products. Unlike term-type commercial paper, in which funds are parked for a set period and principal and interest are paid in a lump sum at maturity, installment-type commercial paper accrues interest based on each monthly payment when a fixed amount is deposited every month.
Korea Investment & Securities Co., NH Investment & Securities, and KB Securities have introduced installment-type commercial paper products, with one-year rates of 4.35% a year at Korea Investment & Securities Co. and NH Investment & Securities, and 4.00% a year at KB Securities.
Because special-sale rates are higher than general products, it is advisable to check each securities firm's special-sale schedule. Interest income from investing in commercial paper is subject to a 15.4% tax withheld at the time of sale.