[비즈한국] Over the past month, the KOSPI has fluctuated by nearly 30%. A combination of surging global oil prices, instability in the Middle East, concerns over U.S. interest rate hikes, and worries about the profitability of big tech companies has been weighing heavily on investor sentiment. This month alone, the market has suffered two separate daily plunges of 7–9%. In such a market, checking one's stock account feels like an exam every single day. Yet, there is an asset that has quietly started to do its part: the cash sitting in your bank account.
Until recently, cash was seen as 'money that earns nothing.' However, as market interest rates have risen in anticipation of base rate hikes and banks have engaged in fierce competition to attract deposits, deposit rates began climbing as early as this spring. This trend became even more pronounced after the Bank of Korea raised the base rate from 2.50% to 2.75% per annum on the 16th. In a market where stocks drop 5% a day, the presence of deposits that offer guaranteed interest grows even more significant. The question is not "whether to deposit or not," but "which money to keep, and where."
The key is to divide your money according to its purpose. It is better to keep money needed within a month or two, or funds waiting to be deployed during a market plunge, in a 'parking account' that accrues interest daily and allows for frequent deposits and withdrawals. Some parking accounts offer interest rates of around 3% per annum if certain conditions are met. On the other hand, for surplus funds that can be left untouched for over a year, fixed-term deposits are more advantageous. Some banks offer fixed-term deposits with rates approaching the high 3% range, while some savings banks offer products exceeding 4%. If you mix money you need to spend with money meant for investment in the same account, you are likely to be hit with a much lower early withdrawal rate instead of the promised interest rate when you are forced to break the deposit early. Simply splitting your accounts by purpose and labeling them can reduce the mistake of touching the wrong money in an emergency.
However, deposit interest is subject to a 15.4% interest income tax. Even at a 4% annual interest rate, the actual interest you take home shrinks to around 3.4% after taxes. Even parking account rates that catch the eye—like '7% per annum'—usually apply only to small amounts of a few hundred thousand to a few million won, with the rate dropping significantly once you exceed a certain threshold. You need to develop the habit of considering the after-tax interest rate actually applied to your money, rather than the maximum rate written in advertisements.
Furthermore, even for the same type of deposit, rates vary depending on where you sign up. You can compare rates for different products at a glance using the Korea Federation of Banks' consumer portal or the National Credit Union Federation of Korea's interest rate comparison service. Some products offer preferential rates for non-face-to-face or mobile sign-ups, or are sold as temporary special offers. However, before signing up, you should check not only the interest rate but also the early withdrawal rate and whether partial withdrawals are possible.
Saving on taxes is just as important as increasing interest rates. Utilizing an Individual Savings Account (ISA) can reduce the tax on deposit interest. Currently, the annual contribution limit is 20 million won, with a lifetime limit of 100 million won. Among the interest and dividend income generated from the account, 2 million won is tax-free for the general type, and 4 million won for the low-income or farming/fishing household types. Earnings above that threshold are subject to a lower tax rate of 9.9% instead of 15.4%. To hold deposits, you must use a trust-type ISA, and since you must maintain the account for three years to receive tax benefits, it should be approached with surplus funds rather than money needed in a hurry.
There are also principles to follow when taking advantage of the high rates at savings banks. As of last September, the depositor protection limit was raised from 50 million won to 100 million won per financial institution. This 100 million won limit applies to each financial institution, not per branch, and it covers the principal plus a certain amount of interest. Therefore, if you deposit exactly 100 million won, part of the interest might exceed the protection limit; to be fully protected, you should reduce the principal by the estimated interest amount and distribute your funds across several institutions.
Beyond parking accounts, a CMA in a brokerage account is also suitable for holding standby funds for stock purchases, as it earns interest even if kept for just one day. However, in principle, brokerage CMAs and MMFs are not covered by depositor protection. There are exceptions, such as certain merchant banking-type CMAs, so you must verify protection status before signing up.
You should also pay attention to how you structure your maturities. Now that the Bank of Korea has kept the possibility of additional rate hikes open, if you tie up your entire lump sum in a single long-term deposit, you would have to accept a lower early withdrawal rate if you wanted to move it when rates rise further. In such cases, it is better to divide your funds into deposits with different maturities, such as 3 months, 6 months, and 1 year. As each short-term maturity approaches, checking the rates at that time and re-depositing the money allows you to respond to potential rate hikes while securing cash flow.
Given that the consumer price inflation rate in June was 3.2%, the after-tax return on deposits barely keeps up with inflation. You cannot grow your assets significantly through deposits alone. However, by separating living expenses and standby investment funds to earn guaranteed interest, you can reduce the urge to sell stocks unnecessarily during market plunges or rush into 'buy the dip' strategies prematurely. Right now, as the market fluctuates, the role that cash needs to play is closer to that than to earning high returns.