Market-based funds accumulate in mutual fund sectors such as agriculture, fisheries, and university lending institutions.

Interest rates in the range of 4% and even tax breaks. KRW 8.8 trillion in mutual finances in a month Many financial technology professionals aim to achieve as low as 0.1% P. Interest Income Tax Low Tax Rate Eye

Market-based funds are flowing into mutual finance sectors such as agriculture, fisheries and credit unions as the upward trend in market interest rates enters its final phase. This is because consumers seeking higher interest rates have switched to mutual financing as commercial bank deposit rates have fallen. Mutual finance is rapidly siphoning off market funds through special sales of deposits with tax breaks and high interest rates.

According to the Bank of Korea’s economic statistics system of December 23, the balance received by mutual financial associations such as agriculture, fisheries, credit unions and forestry associations in March this year was 631.494 trillion won, an increase of 8.7695 trillion won compared with previous month. This is the largest increase since November and December last year, by 10.3786 trillion won and 11.4367 trillion won, respectively, and the third increase since October 1993, when the related statistics were compiled.

The most important reason for the concentration of funds in the investment fund sector is the difficulty this year in obtaining high-interest deposit products, as domestic and foreign central banks stopped increasing interest rates and began to revise the falling interest rates. The interest rate on one-year fixed deposits at Korea’s five largest banks (KB Kookmin, Shinhan, Hana, Woori and NH Nonghyup), which are most accessible to financial consumers, is just 3.50% per annum, including preferential interest rates.

On the other hand, the mutual finance sector has established itself as a deposit destination targeted by fast financial consumers, continuing to provide “guerrilla” specialty products. This month, 4.01% of deposits with a one-year maturity at Jeonju Credit Union A were “sold out” just a day after launch. An official from Credit Union A said, “We are not selling at this time because we have exceeded our internally set sales limit in a single day.”

Similarly, direct deposits with a maturity of 4.1% per annum from Jeju B Suhyup in the same month are currently closed. A similar phenomenon occurred in installment savings products, with one-year installment savings products with an annual interest rate of 4% from the Gwangju Agricultural Cooperative running out of stock this month after the limit of 5 billion won was exhausted in one day.

The sharp increase in interest rates in Gangwon Province at the end of 2022 is also one of the reasons for the concentration of investment funds. It is interpreted that deposits that were rolled over to the same maturity period during the “low interest rate” phase moved in search of higher interest rates due to the need for short-term financing, then lasting 3-6 months.

In addition, savings banks, which are considered an alternative high-interest deposit for commercial banks, have also seen a significant decline in interest rates, as the average interest rate on one-year time deposits has fallen from 3.96% per annum at the beginning of this year to 3.69. % from 23. This is a phenomenon that occurred when savings banks, which found it difficult to find a place to manage their funds due to the collapse of the loan market for financing real estate projects (PF), stopped financing through high-interest deposits. As a result, savings banks’ receivable balance gradually declined to 103.74 trillion won in March this year, after reaching an all-time high of 121.3572 trillion won in November last year.

Tax breaks granted to mutual financial depositors have also helped lead the investment technology community. Mutual financial institutions such as Nonghyup, Suhyup, Credit Union and Saemaul Geumgo are subject to a low tax rate on deposits of union members under the Special Taxation Restrictions Act. The advantage is that interest income tax is only levied at 1.4% on the principal amount of up to 30 million won, including all financial institutions in the mutual insurance sector. An interest income tax of 15.4% is levied on general deposits.

A financial authority official said: “Funds attracted last year by high interest rates matured earlier this year and the funds appear to have been reallocated,” adding: “Mutual financial associations such as agricultural, fisheries, credit unions and forestry appear to have attract inflows as loans from individual businesses continue to grow.”