🚨 Deposit Protection Expanded to 100 Million KRW
Today Korean Economic News for Beginners | 2025.08.24
0️⃣ High-Amount Depositors Rush to Savings Banks, Interest Rate Competition Intensifies
📌 Protection limit expanded from 50 million→100 million KRW starting September, savings banks average 3% interest rate, 0.5 percentage points higher than commercial banks
💬 Starting in September, the deposit protection limit will double from 50 million to 100 million KRW, causing active fund movement among high-amount depositors. High-amount depositors who previously had to spread their funds across multiple financial institutions are now rushing to savings banks offering higher interest rates. Savings banks' average time deposit interest rate is about 3.0%, which is 0.5 percentage points higher than commercial banks (2.5%). Savings banks are competing for customers by launching high-interest products of 3.5% or more annually under the name "deposit protection expansion special sale." The industry expects this deposit protection expansion to become a new turning point for the savings bank sector.
1️⃣ Easy Understanding
Starting in September, even if banks fail, depositors can be guaranteed up to 100 million KRW per person, so people with large amounts of money are moving to savings banks with higher interest rates.
Let me first explain what the 'deposit protection system' is. This is a system where the Korea Deposit Insurance Corporation pays back customers' money if banks or savings banks go bankrupt. Until now, only up to 50 million KRW per person was guaranteed, but starting in September, up to 100 million KRW will be guaranteed.
Previously, to deposit 100 million KRW, you had to split it between two or more banks. For example, 50 million KRW in Bank A and 50 million KRW in Bank B. But now you can put 100 million KRW in one place and still be safely guaranteed.
So where would people want to put their money? Naturally, if the safety is the same, they would choose places with higher interest rates. This is where savings banks are getting attention.
Currently, commercial banks' (Kookmin Bank, Shinhan Bank, etc.) 1-year time deposit interest rate averages about 2.5%. In contrast, savings banks offer an average interest rate of 3.0%. If you deposit 100 million KRW for one year, you would receive 2.5 million KRW in interest from commercial banks and 3 million KRW from savings banks, a difference of 500,000 KRW.
Furthermore, some savings banks are launching "deposit protection expansion commemoration" special products offering high interest rates of 3.5-4.0% annually. These products are often sold for limited periods or offered only to new customers.
So why can savings banks offer higher interest rates than commercial banks? Savings banks are smaller and have lower brand recognition, so they need to offer more attractive conditions to attract customers. Also, savings banks mainly lend to small businesses and individual entrepreneurs, where they can receive higher lending rates than commercial banks, giving them room to offer higher deposit rates.
Ultimately, the deposit protection limit expansion is an opportunity for high-amount depositors and a golden chance for savings banks to increase customers.
2️⃣ Economic Terms
📕 Deposit Protection System
The deposit protection system is a safety net where the government guarantees depositors' money if financial institutions go bankrupt.
- Operated by Korea Deposit Insurance Corporation, all banks and savings banks must participate.
- The protection limit expanded from 50 million to 100 million KRW, allowing more money to be safely protected.
- Since up to 100 million KRW including interest is guaranteed, you can deposit slightly more than 100 million KRW in principal.
📕 Savings Banks
Savings banks are regional financial institutions smaller than commercial banks but offering higher interest rates.
- They are official financial institutions protected by the Korea Deposit Insurance Corporation, ensuring safety.
- They often provide deposit interest rates 0.5-1.0 percentage points higher than commercial banks.
- While some had negative perceptions due to past savings bank failures, they are now under strict supervision by financial authorities.
📕 Special Sale Products
Special sale products are special financial products sold only for limited periods or conditions.
- They usually offer higher interest rates or benefits than market average to attract new customers.
- They have restrictions on sales period, subscription limits, and target customers, often requiring quick signup.
- Since interest rates are high, conditions should be carefully checked before joining.
📕 Interest Rate Competition
Interest rate competition is competition among financial institutions offering higher deposit rates or lower lending rates to attract customers.
- It's advantageous for depositors as they can earn higher returns.
- However, excessive interest rate competition can worsen financial institutions' profitability.
- It tends to intensify during market changes or deregulation periods.
3️⃣ Principles and Economic Outlook
✅ Background and Effects of Deposit Protection Expansion
Let's analyze why the deposit protection limit expansion occurred and what changes it will bring.
First, it's a measure to compensate for the decline in real protection level due to inflation. The current 50 million KRW limit was set in 2009 and had been frozen for 16 years. During this time, prices rose about 40% and household financial asset size increased significantly. The current value of 50 million KRW from 2009 is only about 35 million KRW, meaning the real protection level had significantly declined. The government showed its intention to more thoroughly protect middle-class assets through this measure.
Second, it has the effect of promoting financial market competition and increasing consumer welfare. Until now, high-amount depositors tended to concentrate funds in major commercial banks due to safety concerns. But now they can choose various financial institutions like savings banks or internet banks. This intensifies competition among financial institutions, and depositors can choose products with better conditions. Commercial banks are also considering interest rate increases to prevent customer exodus, so we can expect overall deposit rate increases.
Third, for the savings bank industry, it's both a growth opportunity and a burden. As more funds flow into savings banks due to deposit protection expansion, their funding costs will inevitably rise. Having attracted money with high interest rates, they face pressure to operate that money at higher returns. This could provide incentives for savings banks to engage in riskier lending, making financial authorities' soundness management increasingly important.
Deposit protection expansion is an important change that goes beyond simple limit increases to transform the entire financial market's competitive structure.
✅ Savings Banks' Customer Attraction Strategies and Limitations
Let's examine how savings banks are attracting customers and what limitations they face.
First, they're conducting aggressive marketing with high-interest special sale products. Major savings banks are currently launching time deposit products with 3.5-4.0% annual rates under the name "deposit protection expansion commemoration special sale." Some offer even higher rates for 6-month or 1-year terms, and provide additional preferential rates to new customers. Compound products that raise interest rates when conditions like mobile banking registration and salary transfer setup are met are also popular. Most of these products are sold in limited quantities, stimulating the psychology of "hurry up."
Second, they're also active in strengthening digital channels and improving services. While savings banks used to be perceived as places where you could only do business at small local branches, now you can use financial services anytime, anywhere through mobile apps and internet banking. Especially to target young customers, they're modernizing app designs and introducing simple account opening processes. Some savings banks have built systems where you can complete everything from "non-face-to-face account opening" to "high-interest deposit subscription" online.
Third, however, concerns are raised about sustainability. Having raised funds with high interest rates, savings banks must operate that money at higher returns. The problem is that it's difficult to earn such high returns from safe investments. Eventually, they have no choice but to enter relatively risky areas like small business loans or personal credit loans, which can increase default risks. Since the 2011 savings bank crisis was also caused by such excessive high-interest competition and risky investments, the industry needs a cautious approach.
Savings banks' customer attraction efforts are active, but balancing profitability and soundness is the biggest challenge.
✅ Impact on the Overall Financial Market
Let's analyze the long-term impact of deposit protection expansion on the entire banking industry and financial consumers.
First, commercial banks also face inevitable strategy modifications in response to intensified competition. Commercial banks that could maintain customers with relatively low interest rates using brand power and safety as weapons are now under pressure to change. Some commercial banks have already raised time deposit rates by 0.1-0.2 percentage points and are increasing products offering preferential rates when specific conditions are met. They're also pursuing strategies to strengthen more diverse additional services (asset management, investment consulting, etc.) to differentiate from non-banking sectors.
Second, there are positive effects of expanded choices for financial consumers. With the basic condition of "safety" satisfied through deposit protection expansion, consumers can more freely choose financial institutions based on interest rates, services, and accessibility. Especially, high-asset individuals no longer need to spread funds across multiple banks, greatly improving management convenience. This is expected to create a virtuous cycle structure that encourages financial institutions to develop better products and services in the long term.
Third, financial authorities' soundness supervision will become more important. With increased trust in savings banks due to deposit protection expansion, more funds are expected to flow in. However, the Financial Supervisory Service's role has become important to prevent this from leading to reckless risk-taking. The FSS has announced plans to strengthen monitoring of soundness indicators in preparation for rapid asset growth at savings banks and provide guidelines for excessive high-interest competition. The Korea Deposit Insurance Corporation is also considering measures to suppress excessive risk-taking through insurance premium rate adjustments.
Deposit protection expansion promotes financial market competition while also increasing the importance of soundness management.
4️⃣ In Conclusion
The expansion of deposit protection limits to 100 million KRW brings freedom of choice to high-amount depositors, growth opportunities to savings banks, and a more competitive environment to the entire financial market.
The biggest change is that people can now choose financial institutions based on interest rates without worrying about safety. As the inconvenience of having to split deposits exceeding 50 million KRW across multiple banks disappears, many high-amount depositors are moving to savings banks with higher interest rates.
Savings banks are engaging in aggressive marketing and launching high-interest products to not miss this opportunity. Special sale products with 3.5-4.0% annual rates are being released one after another, and they're also active in improving digital services. This is clearly an opportunity for the savings bank industry that had been overshadowed by commercial banks.
However, there are also concerns. As seen in the 2011 savings bank crisis, excessive high-interest competition risks leading to insolvency. Having raised funds with high interest rates, pressure increases to find riskier investment destinations. Therefore, financial authorities' soundness supervision is more important than ever.
Commercial banks also face situations requiring response to change. As it becomes difficult to retain customers with brand power alone, they're preparing countermeasures like interest rate increases or strengthening additional services. This is ultimately expected to lead to overall deposit rate increases, having a positive impact on depositors.
From financial consumers' perspective, having gained more options, it's important to comprehensively consider the financial institution's soundness, service quality, and access convenience rather than deciding based solely on interest rates. Especially for high-interest special sale products, it's important to carefully examine post-maturity interest rate changes and early termination conditions.
Ultimately, this deposit protection expansion is a positive change bringing more competition and freedom of choice to Korea's financial market. However, making this change sustainable and sound is the future challenge.
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