Deposit
Overview
A deposit (예금, Deposit) is a financial product in which an individual or corporation entrusts funds to a financial institution such as a bank and receives the principal and interest after a certain period. Deposits are classified as the most common savings tool and safe asset worldwide, with the principal guaranteed up to a certain amount through the deposit protection system. Deposits are broadly divided into demand deposits (checking accounts, ordinary deposits) and savings deposits (time deposits, installment savings, flexible savings), each with different liquidity and interest rate levels.
Main Content
1. Types of Deposits
- Demand Deposits: Deposits that allow free deposits and withdrawals at any time. Interest rates are low but liquidity is high. Includes ordinary deposits, checking accounts, and savings deposits.
- Savings Deposits: Offer higher interest rates in exchange for locking funds for a fixed period. Representative examples include time deposits, installment savings, flexible savings, and housing subscription comprehensive savings.
- Special Purpose Deposits: Products with policy objectives, such as subscription savings, tax-benefit savings, and soldier future preparation installment savings.
2. Factors Determining Deposit Interest Rates
- Base Rate: Changes in the central bank (Bank of Korea) base rate directly affect deposit interest rates.
- Market Rates: Fluctuate according to market conditions such as bond rates and CD (Certificate of Deposit) rates.
- Bank's Funding Strategy: The more funds a bank needs, the higher the deposit interest rates.
- Deposit Term: Generally, longer terms yield higher interest rates.
- Deposit Amount: Large deposits may qualify for preferential interest rates.
3. Deposit Protection System
- Korea Deposit Insurance Corporation: Protects up to 50 million won per person (principal + interest). As of 2024, scheduled to increase to 100 million won from 2025.
- Protected Institutions: Banks, savings banks, credit unions, community credit cooperatives, and agricultural/fisheries/livestock cooperatives.
- Exclusions: Foreign currency deposits, certificates of deposit (CDs), financial bonds, and some high-interest special sale products.
4. Comparison of Deposits with Other Financial Products
- Deposit vs. Installment Savings: A deposit involves entrusting a lump sum at once, while installment savings involve paying a fixed amount monthly.
- Deposit vs. Fund: Deposits guarantee principal (within protection limits), while funds may incur principal loss.
- Deposit vs. Stocks: Deposits are stable but offer low returns; stocks can yield high returns but carry high risk.
- Deposit vs. Bonds: Deposits have high liquidity and short terms; bonds carry market price fluctuation risk.
5. Considerations When Opening a Deposit
- Interest Rate Comparison: Interest rates vary significantly by bank and product, so comparison is essential.
- Maturity and Early Withdrawal: Early withdrawal of time deposits results in a lower interest rate than the contracted rate.
- Taxes: Interest income tax of 15.4% (withholding), subject to comprehensive financial income taxation (if annual financial income exceeds 20 million won).
- Deposit Protection Limit: It is recommended to spread deposits exceeding 50 million won across multiple institutions.
6. Economic Functions of Deposits
- Fund Intermediation: Banks use funds gathered through deposits for loans and other operations.
- Money Supply Control: Deposits are a major component of the money supply (M2).
- Personal Financial Management: Serve as a foundation for portfolios as safe assets.
Latest Trends
As of 2024–2025, the global high-interest rate trend is gradually easing, leading to a decline in deposit interest rates. The Bank of Korea began lowering the base rate in the second half of 2024, and as of early 2025, it stands at 2.75% per annum. Consequently, time deposit rates have fallen from the low 3% range to the mid-to-late 2% range. Key trends include:
- Rise of Internet-Only Banks: KakaoBank, K-Bank, and Toss Bank are expanding market share with high interest rates and convenience.
- Linkage with ISA (Individual Savings Account): Tax-benefit products combining deposits and funds are popular.
- Products for Aging Population: Retirement savings and personal IRP (Individual Retirement Pension) deposit products are increasing.
- ESG Deposits: Deposit products linked to environmental, social, and governance (ESG) investments are being launched.
- Digital Transformation: Non-face-to-face deposit subscriptions via mobile apps are increasing, along with AI-based interest rate recommendation services.
- Foreign Currency Deposit Demand: Interest in foreign currency deposits such as USD and JPY is rising due to increased exchange rate volatility.
Related Topics
- [[Time Deposit]]
- [[Installment Savings]]
- [[Deposit Protection Act]]
- [[Interest Rate]]
- [[Bank]]
- [[Savings]]
- [[ISA]]
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