Depositors dismayed by plunging interest rates - The Korea Times

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Depositors dismayed by plunging interest rates


By Lee Kyung-min

A man in his 50s surnamed Kim feels increasingly troubled every time he watches the news about falling interest rates.

"The Bank of Korea (BOK) recently lowered its key rate less than two months after the last cut. And from what I have heard, it may cut the rate further in the coming months," Kim said.

"This will shrink my interest income from money I have long put in savings and installment accounts at different commercial and savings banks ― my major source of post-retirement income. I feel frustrated," he said.

The BOK cut its key interest rate by 25 basis points to a record-low 1.25 percent Oct. 16, citing sagging exports and weakening private consumption amid mounting uncertainties both at home and abroad.

It also left the door open for further easing amid the deepening U.S.-China trade feud.

Kim added buying high-risk, high-yield financial products including derivative-linked funds (DLF) sold by banks or insurers is not an option after he saw many people his age staging rallies in front of banks with picket signs reading: "You destroyed my post-retirement plan."

Widely known as the DLF Fiasco, many investors who bought the derivatives sold by KEB Hana and Woori banks lost their entire investment.

The products, whose return is determined by the performance of underlying assets such as interest rates and government-issued bond yields, initially drew popularity with a promise of higher return than bank deposit interests.

However, their returns plummeted as the underlying assets underperformed expectations.

"I heard the banks are being investigated, but people say they may not get their money back. They say the investors were also at fault for buying without fully understanding the risks. I don't want to lose my money and get blamed for it," he said.

Kim is among many people nearing retirement that will see their income reduce as many commercial banks following the BOK rate cut are expected to lower deposit rates starting this week in line with customary practice.

KB Kookmin Bank said it will lower its deposit rate as early as this week, a move expected to be followed by NongHyup Bank within this month.

KEB Hana, Shinhan and Woori banks have yet to decide, but they are likely to lower deposit rates.

"We will have to keep monitoring the financial market. We do not have a specific timeframe on it as of now," a banking official said.

More people who have long relied on interest from bank deposits will see their income drop in the coming years, according to Sung Tae-yoon, an economist at Yonsei University.

"Low interest is common in many other advanced economies amid low growth. The deposit interest income will not be the viable post-retirement plan it once was," he said.





By Lee Kyung-min

A man in his 50s surnamed Kim feels increasingly troubled every time he watches the news about falling interest rates.

"The Bank of Korea (BOK) recently lowered its key rate less than two months after the last cut. And from what I have heard, it may cut the rate further in the coming months," Kim said.

"This will shrink my interest income from money I have long put in savings and installment accounts at different commercial and savings banks ― my major source of post-retirement income. I feel frustrated," he said.

The BOK cut its key interest rate by 25 basis points to a record-low 1.25 percent Oct. 16, citing sagging exports and weakening private consumption amid mounting uncertainties both at home and abroad.

It also left the door open for further easing amid the deepening U.S.-China trade feud.

Kim added buying high-risk, high-yield financial products including derivative-linked funds (DLF) sold by banks or insurers is not an option after he saw many people his age staging rallies in front of banks with picket signs reading: "You destroyed my post-retirement plan."

Widely known as the DLF Fiasco, many investors who bought the derivatives sold by KEB Hana and Woori banks lost their entire investment.

The products, whose return is determined by the performance of underlying assets such as interest rates and government-issued bond yields, initially drew popularity with a promise of higher return than bank deposit interests.

However, their returns plummeted as the underlying assets underperformed expectations.

"I heard the banks are being investigated, but people say they may not get their money back. They say the investors were also at fault for buying without fully understanding the risks. I don't want to lose my money and get blamed for it," he said.

Kim is among many people nearing retirement that will see their income reduce as many commercial banks following the BOK rate cut are expected to lower deposit rates starting this week in line with customary practice.

KB Kookmin Bank said it will lower its deposit rate as early as this week, a move expected to be followed by NongHyup Bank within this month.

KEB Hana, Shinhan and Woori banks have yet to decide, but they are likely to lower deposit rates.

"We will have to keep monitoring the financial market. We do not have a specific timeframe on it as of now," a banking official said.

More people who have long relied on interest from bank deposits will see their income drop in the coming years, according to Sung Tae-yoon, an economist at Yonsei University.

"Low interest is common in many other advanced economies amid low growth. The deposit interest income will not be the viable post-retirement plan it once was," he said.




Lee Kyung-min lkm@koreatimes.co.kr


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