South Korean household funds are shifting away from stock market investments and back into traditional bank deposits as interest rates climb. According to a report released by KB Securities on September 10, rising deposit rates and higher borrowing costs are slowing the flow of retail capital into equities.
The total volume of bank time deposits surged by 20조3000억원 in August, matching the sharp growth pace set in July, according to KB Securities researcher Ryoo Jin-yi. While corporate cash drove the broader deposit growth earlier in the year, retail deposits turned positive in August, signaling a distinct shift in household asset allocation.
Corporate Cash Drives Early Growth While Retail Money Moves
Bank deposit growth through June was largely propelled by corporate sector reserves. Robust export performance and large trade surpluses generated excess capital for businesses, according to KB Securities data. Meanwhile, household time deposits remained flat through the second half of last year before dropping sharply in the early months of the year as retail investors chased returns in stocks and investment funds.
That trend shifted in August as household time deposits moved back into positive territory. Concurrently, overall bank household loan growth moderated, dropping from 5조5000억원 in July to 3조4000억원 in August. Other types of loans, including credit facilities, contracted by 6000억원 after expanding by 2조원 the previous month. The Bank of Korea attributed the contraction in other loans to a cooling of individual stock investments alongside tighter credit management by commercial banks.
Impact of Bank of Korea Rate Hikes on Household Borrowing
While total household debt continues to climb, borrowing directly tied to stock market investments has begun to level off. The combination of slowing debt expansion and recovering time deposit inflows suggests that households pulled back on leveraging or liquidating savings to fund speculative trades starting in August.
This behavior is expected to become more pronounced as monetary policy tightens. Although borrowing costs began creeping up late last year, back-to-back rate hikes by the Bank of Korea in July and August solidified the upward trajectory on interest rates. Higher loan rates restrict the expansion of secondary credit lines, while elevated deposit yields give households a stronger incentive to park excess cash in fixed-return accounts.
Related reading