“If You Deposit 100 Million Won for a Year In a Bank, You’ll Lose 110,000 Won”

With the decreasing bank savings rate, the interest earnings from depositing 100 million won in a bank will be only 3.19 million won--265,800 won monthly--according to a recent report. In addition, the actual interest rate taking the consumer price increase rate into account comes out to a rate below zero, meaning that people living on bank savings interest are having a difficult time.

According to a report titled: “Financial Institutions’ Weighted Average Interest Rate Trends” released by the Bank of Korea (BOK) on June 27, the average interest rate of bank savings fell by 0.08 points to 3.82 percent per year in May from 3.90 percent in April. This is the lowest in seven months since 3.81 percent in October of last year.

Savings with the interest rate of May will earn 3.82 million won of interest after a year. However, one’s actual interest will only be 3,189,700 won after the 16.5 percent interest income tax of 630,300 won.

If the consumer price increase rate of 3.3 percent in May keeps steady for a year, a 100-million-won deposit into a savings account that will expire after a year will have to earn 3.30 million won of interest to keep its current value. Eventually, this means that the value of the saved money will fall 110,300 won after a year considering the price increase rate.

The loan rate also has dropped to a record low due to a severe decrease in personal housing loans and in corporate investment. The average loan interest rate in May was 5.97 percent per year, dropping by 0.05 percent from the previous month’s 6.02 percent.

Average loan interest rate of May was at the same level as last September’s, which recorded the lowest level since 1996 when the BOK started keeping statistics of average interest rates of financial institutions. In particular, the large-corporation loan interest rate set its lowest record ever with 5.60 percent because large corporations are reluctant to make investments, even with cash stacked up next to them.

“With money that failed to find a right place to be invested flowing into banks continuously, the savings interest rate has been lowered to a great degree. Also, tightened consumption and investment has caused money demand by families and corporations to stagnate, which has caused the loan interest rate to drop as well,” explained Deputy General Manager Park Seung-hwan of the BOK’s Financial Statistics Team.

Joong-Hyun Park sanjuck@donga.com