As the Bank of Korea prepares to resume its interest rate hike cycle, there is growing interest in whether some household funds that had flowed into the stock market will shift back to bank deposits. Although rising deposit rates may enhance the appeal of safe assets, expectations for stock market gains remain high, and the current low interest rate levels suggest that a rapid reversal in money movement is unlikely.
According to the financial sector on July 15, the Bank of Korea's Monetary Policy Committee will decide on adjustments to the current benchmark interest rate of 2.50% on July 16. Given the recent consumer price inflation rate in the 3% range, fluctuations in the won-dollar exchange rate, and steady economic growth, the market widely anticipates a 25 basis point (1 basis point = 0.01 percentage points) increase in the benchmark rate during this meeting. There is also a prevailing outlook that an additional hike may occur later this year, depending on inflation and financial stability conditions.
If the benchmark rate rises, it is likely that deposit rates at commercial banks will follow suit. Currently, the highest interest rate for 12-month fixed deposits at the four major banks (KB Kookmin, Shinhan, Hana, and Woori) is around 2.90%. Following the anticipated rate hike, some products are expected to exceed 3%, which could attract funds seeking relatively stable returns.
This year, household funds have shown a preference for investment assets over deposits. According to the Bank of Korea's '2026 Q1 Financial Flow' statistics, the scale of household fund management increased from 84.3 trillion won in the fourth quarter of last year to 96.3 trillion won in the first quarter of this year. During the same period, the scale of fund procurement slightly decreased from 17.3 trillion won to 17.1 trillion won. While the proportion of savings deposits has decreased, the share of equity securities and investment funds has increased, indicating a flow of funds into the stock market.
Market analysts believe that a single interest rate hike will not drastically change the flow of funds. Household funds tend to respond more sensitively to the expected returns of risk assets like stocks and market outlooks than to deposit rates themselves. As long as expectations for stock market gains remain, the likelihood of a large-scale shift to deposits is limited. However, funds waiting for investment opportunities or those with short-term management strategies may respond more sensitively to rising deposit rates, suggesting that movements will vary based on the nature of the funds.
Experts suggest that a significant money movement will only occur when the relative attractiveness of deposits and stocks changes together. Even if deposit rates rise due to the benchmark rate hike, the current levels may not be sufficient to reverse the preference for risk assets, and the investment appeal of other safe assets like bonds may become more pronounced.
Kim Sang-bong, a professor of economics at Hansung University, stated, "The current benchmark rate is still low, so even a 25 to 50 basis point increase is unlikely to lead to a massive shift in funds. Interest rates need to rise to levels similar to those in the United States for deposits to become more attractive, and at present, bonds may be a better investment option than deposits."
* This article has been translated by AI.
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