Home > Business > Finance

Internet-only banks up interest rates in bid to stymie outflow to bullish bourses

Published: 24 Nov. 2025, 18:46 Updated: 24 Nov. 2025, 18:49

Logos of internet banks [JOONGANG ILBO]

Internet-only banks and savings banks are raising interest rates on fixed deposits, with more products now offering rates in the 3 percent range. Analysts say this is part of a “lock-in” strategy to retain customer deposits amid rising market rates, a buoyant stock market and the upcoming launch of investment management accounts (IMAs) that could divert funds.

According to the Korea Federation of Banks on Monday, Kbank recently raised the maximum interest rate on its one-year “Code K Deposit” from 2.58 percent to 2.86 percent per annum. KakaoBank also increased its rates three times over the past two months, raising the one-year deposit rate from 2.5 percent to 2.85 percent. Toss Bank joined in, lifting its three- and six-month deposit rates by 0.1 percentage point, pushing them into the mid-2 percent range.

Savings banks — which had been cautious about deposit collection due to the economic slowdown and tighter lending regulations — are now following suit. According to the Korea Federation of Savings Banks, the average interest rate for one-year fixed deposits at the country’s 79 savings banks rose to 2.71 percent on Monday, after dipping into the 2.6 percent range between Nov. 13 and 17.

"The move aims to prevent customer outflows, as many high-interest special deposits are nearing maturity and the broader sector is raising rates," said a savings bank representative.

Major commercial banks have also joined the race.

As of Monday, the top interest rates on one-year time deposits at Korea’s five leading banks — KB Kookmin, Shinhan, Woori, Hana and NH Nonghyup — ranged from 2.8 percent to 3.1 percent. Shinhan's "MyPlus Deposit,” which offers the highest rate, provides an additional 0.2 percent preferential rate to customers who have not held a time deposit in the past six months and receive a salary of at least 500,000 won ($340) in a Shinhan Bank checking account. This is 0.58 percentage points higher than last month’s average rate. KB Kookmin Bank’s “KB Star Deposit” has also seen six rate hikes in the past two months, reaching a top rate of 2.85 percent.

A pedestrian walks past ATMs for commercial banks in Seoul on June 3. [YONHAP]

The rate increases are in line with a broader rise in market interest rates. Expectations for a base rate cut have weakened due to an overheated real estate market and a sharp depreciation of the won against the dollar, pushing up yields on government and financial bonds. On Monday, the yield on 10-year Treasury bonds stood at 3.28 percent — nearly matching this year’s high of 3.325 percent recorded on Nov. 20 — while five-year bonds held at 2.9 percent, close to the year's peak of 2.94 percent set on Nov. 14.

"Banks are increasingly relying on customer deposits, which are cheaper than issuing bank bonds, as a source of funds for loans," said a banking insider.

Attention is now turning to whether funds that recently flowed into the stock market will return to banks. Securities firms are expected to launch IMAs as early as next month, offering products that guarantee principal while distributing returns of 5 to 8 percent from invested client funds, putting additional pressure on banks to attract and retain customers.

However, rising deposit rates are not good news for borrowers. Deposit and lending rates tend to rise together. Changes in deposit rates also affect the Cost of Funds Index, a benchmark used to set variable-rate mortgage loans. As of Monday, the index stood at 2.57 percent, up for the second consecutive month.

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
BY KIM SEON-MI [[email protected]]