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| gettyimagesbank |
By Lee Min-hyung
Legacy banks are losing appeal among customers, as internet-only banks become the more attractive option for depositing savings, data showed.
This is a disappointing twist for major commercial banks. In 2022, signing up for deposit products was all the rage among customers due to steeply-rising interest rates at the time amid the U.S. Federal Reserve's aggressive monetary tightening.
Late last year, some legacy banks offered an annual interest rate of more than 5 percent for customers' savings deposits. But starting in 2023, the Bank of Korea (BOK) started freezing its key rate. This pushed the deposit rate down below 3 percent for some savings products.
According to data from the Korea Federation of Banks, Thursday, six savings products from local banks offered an annual interest return in the range of 2 percent. The average savings interest rate of five major banks ― such as KB Kookmin, Shinhan, Hana, Woori and NongHyup Bank ― fell by around 1.5 percentage points to a band of 3.4 percent and 3.57 percent on the same day, from six months earlier.
Data from the four banks ― except for NongHyup ― showed that their combined savings account balance came in at 628.8 trillion won as of May 17. This is a drop of more than 16 trillion won from the end of 2022.
But this was not the case for internet-only banks. Even while offering similar levels of interest returns for savings products, more money has flown into their savings accounts this year. The savings account balance of three internet-only lenders ― KakaoBank, K bank and Toss Bank ― reached over 80 trillion won in total at the end of the first quarter, up around 17 percent from the end of last year.
This was propelled by their aggressive marketing efforts that have met customer demand. In March, Toss Bank launched a savings product that provides interest returns in advance. In most cases, customers were able to receive their interest returns from savings products on their maturity.
The product gained popularity particularly among younger age groups. It clinched sales of 1 trillion won in only about 33 days of its launch.
KakaoBank also launched a similar service called Safe Box. Customers can send money to their in-app safe-deposit box which comes with an annual interest of 2.4 percent, even if they park the money there for a day.
The mobile bank also recently changed its terms and conditions to gain more popularity from customers. The interest return was provided once in a month at a fixed date. But customers can now select the date on their own under the revised terms.
"Conventional banks' profit structure is still heavily reliant on the sales of loan products, so they are likely to pay relatively less attention to the launch of such creative deposit products than mobile banks whose main customers are young," a financial industry source said.
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