Major banks have been raising interest rates on deposits and savings accounts this month, reflecting an effort to secure customer funds amid rising market rates. While this increase benefits depositors through higher interest earnings, it could also lead to greater burdens for borrowers with variable-rate mortgages if these higher rates are reflected in the COFIX (Cost of Funds Index).
According to the financial sector on September 23, NH Nonghyup Bank has raised the interest rates on its fixed and savings deposit products by 0.20 to 0.25 percentage points starting today. The interest rate for its flagship 'NH All One e-Deposit' for a one-year term has been increased by 0.10 percentage points to 3.55% annually.
NH Nonghyup Bank had previously raised the interest rates for the NH All One e-Deposit by 0.20 to 0.30 percentage points based on the duration of the deposit on September 11. This latest increase comes less than two weeks after the previous adjustment. A bank official stated, “This reflects the increase in market interest rates, including the Bank of Korea's base rate hike.”
Other banks are also increasing their rates. KB Kookmin Bank's 'KB Star Time Deposit' and Woori Bank's 'WON Plus Deposit' have both seen their one-year rates rise to 3.50%. Hana Bank raised the interest rate for its 'Hana Time Deposit' from 3.30% to 3.40% on September 22, marking a second increase in just 12 days after it was raised from 3.20% to 3.30% on September 10. KakaoBank has also increased its one-year fixed deposit rate to 3.70% starting today.
The recent increases in deposit rates are influenced by rising market interest rates. As domestic and international bond yields rise, the cost of funding through bank bonds has increased, prompting banks to adjust their deposit rates accordingly. There is also a consideration of the potential movement of maturing deposits due to differences in rates among banks.
While the increase in deposit rates may take time to affect loan rates, it could eventually have an impact. The funding costs for banks, including time deposits and bank bonds, are reflected in the COFIX calculation. COFIX serves as a key benchmark for variable-rate mortgage loans.
In August, the COFIX based on new transactions remained at 3.18%, unchanged from July. After rising from 3.05% in June to 3.18% in July, the upward trend has paused. Conversely, the COFIX based on outstanding balances rose by 0.05 percentage points to 3.05%, while the new balance COFIX increased by 0.06 percentage points to 2.71%.
The deposit rate increases announced this month have not yet been reflected in the August COFIX. The actual impact of the September deposit rate hikes on banks' funding costs will be revealed in next month's COFIX report. With rising bank bond rates continuing to exert upward pressure on fixed and mixed-rate mortgages, an increase in COFIX could also raise interest burdens for borrowers with variable-rate loans.
* This article has been translated by AI.
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