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2017 interest rates went into negative territory

Apr 09,2018
Real interest rates offered by Korean lenders fell into minus territory last year, with people effectively losing money if they make deposits, central bank data showed Sunday.

The Bank of Korea said the average annual interest rate for savings accounts stood at 1.56 percent, compared with inflation that reached 1.9 percent, resulting in a real interest rate of minus 0.34 percent.

It said average interest rate numbers for 2017 were the second-lowest in history and marked the first time in six years that they fell into the negative rate range. The country’s rise in consumer prices hit the second-highest level since 2012, when they grew 2.2 percent.

Last year’s numbers are in direct contrast to 10 percent rates offered by commercial banks for deposits in the mid-1990s, when the real interest people received for parking their money with lenders actually reached 5-6 percent.

The BOK said low interest rate trends started to take hold following the global financial meltdown, with real interest dropping to 1.43 percent in 2013 and dipping to 1.04 percent in 2015 before it hit zero percent in 2016.

Cho Young-moo, a senior economist at the LG Economic Research Institute, said that with banks not providing profits, people have started looking for other means of generating earnings, which is causing a slowdown in money going to lenders.

Last year the total size of deposits stood at 1,305.5 trillion won ($1.22 trillion), up 5.2 percent from a year earlier. This is the lowest annual increase after the 2 percent gain reported for 2013.

“Those that do deposit money at banks are not doing it for interest, but mainly because they have not found other places to invest,” Cho said. He said such deposits are usually short-term, with people withdrawing them as soon as they find other places to divert their money.

Market data backed up this stance, with a steady inflow of funds moving into the stock market and real estate in recent years. Yonhap