Korean Internet Banks Lift Deposit Rates Into 3% Range to Compete for Savers

As major commercial banks keep deposit rates in the 2% range, South Korea’s internet-only banks are competing for funding by offering rates even 0.1 percentage point higher. The strategy is aimed at attracting rate-sensitive savers seeking higher returns on deposits.

According to the financial sector on Monday, key deposit and savings products at internet banks are generally priced in the 3% range. KakaoBank raised rates on some funding products by up to 0.1 percentage point starting Monday. Its one-year time deposit rose to 3.1% from 3.0%, and its one-year flexible savings product increased to 3.25% from 3.15%. The move marked an additional hike about two months after Feb. 13 and puts its rates among the highest compared with major commercial banks.

K Bank also increased the one-year rate on its “CodeK” time deposit to 3.2% from 3.01% starting March 31, a 0.19 percentage point rise. Toss Bank has not raised rates on funding products this year, but launched a one-year “time deposit with interest paid upfront” product in December at about 2.8% annually.

Internet banks have been stepping up rate competition as they seek to expand their deposit base by offering higher yields than traditional lenders. Unlike major banks, internet banks do not operate offline branches, reducing fixed costs such as branch expenses and in-person staffing and giving them more room to offer higher deposit rates.

“Given the nature of internet banks, we are maintaining a strategy of setting deposit rates somewhat higher than those of major banks,” an official at one internet bank said. “Even offering rates in the 3% range does not put undue pressure on profitability.”

Rising market rates have also played a role. According to the Korea Financial Investment Association, yields on one-year bank bonds have recently been in the low 3% range, up about 0.3 percentage point so far this year. While higher bank-bond yields raise funding costs, major banks have a larger share of low-cost deposits — such as payroll accounts and corporate operating funds — reducing the incentive to raise deposit and savings rates.

Internet banks, by contrast, have a higher share of customers sensitive to interest rates and are moving to strengthen competitiveness through deposit and savings products. “Market rates have risen significantly recently, so we adjusted rates as a response,” another internet-bank official said.