4% Bank Deposit Rates Rise as Variable Loan Burdens Grow
Bank regular deposit interest rates in South Korea have climbed past 4% following a series of central bank base rate hikes, creating immediate returns for savers while driving up borrowing costs for variable-rate mortgage holders, according to reports by mk.co.kr.
Base Rate Hikes Drive Deposit Rates Over 4 Percent
The push past the 4% threshold follows two consecutive base rate increases by the Bank of Korea in July and August, which brought the benchmark rate from 2.5% to 3%. That monetary tightening has raised banks’ funding costs and pushed commercial lenders to adjust their deposit offerings upward.
Shinhan Bank introduced its Super SOL Welcome Regular Deposit offering a top rate of 4% capped at a 500 billion won fund. That product marks the first time Shinhan has offered a 4% rate on a representative deposit product since November 29, 2023. BNK Kyongnam Bank launched The Deundeun Deposit Season 2 at up to 4.1% and The Partner Deposit at 4%. SC First Bank priced its e-Green Save Deposit at a maximum rate of 4.05%, while BNK Busan Bank introduced The Special Regular Deposit at 4.05% and The Level Up Regular Deposit at 4%.
Variable-Rate Borrowers Face Rising Interest Burdens
Higher deposit rates increase the costs banks face to secure funds, which directly influences the Cost of Funds Index, or COFIX. Because COFIX tracks deposit and bank debenture costs across eight major domestic banks, it serves as the benchmark for variable-rate mortgage pricing. As banks pay more to attract deposits, COFIX rises, and mortgage rates climb in tandem.
That mechanical link places the heaviest pressure on variable-rate borrowers. Variable-rate mortgages reset periodically to reflect changes in COFIX, passing the index increases directly to households.
Recent borrowers are heavily exposed to those adjustments. Data from the Bank of Korea Economic Statistics System shows that new variable-rate mortgages accounted for 68.1% of total mortgage originations in July, the highest proportion recorded since February 2014. Borrowers continued favoring variable rates in August, with 64.7% selecting the option. Those households face growing risks of expanded interest payments when their loans come up for rate resets.
Shinhan Bank last offered a 4% rate on its Sol-convenient Regular Deposit on November 29, 2023.