South Korea’s ruling and opposition parties have agreed to raise the deposit insurance cap from 50 million won to 100 million won, sparking interest in the potential movement of an additional 233 trillion won in newly insured deposits. Currently, deposit insurance covers up to 50 million won per account in banks, savings banks, and insurance companies if they face bankruptcy. Increasing the cap will extend protection to an additional 233 trillion won, adding to the 1,456 trillion won already covered under the current policy.
The change has financial institutions, from major banks to savings banks and mutual finance companies, preparing for potential shifts in customer deposits. Analysts expect that with higher coverage, consumers may be inclined to move their funds toward high-interest institutions, like savings banks and mutual finance companies. However, the savings bank sector remains cautious, with some expressing concern that an influx of deposits could raise capital costs, presenting both opportunities and challenges.
The National Policy Committee is set to convene a subcommittee meeting on Nov. 25 to draft the legislation for the cap increase. According to the Financial Services Commission, the National Assembly has received eight proposals for the change, with three bills from the ruling People Power Party and five from the Democratic Party. Five of these bills propose raising the cap to 100 million won. “We’re in broad agreement on raising the cap to 100 million won, but details around timing still need to be finalized,” a committee representative said. An FSC official voiced support for the increase but suggested a gradual implementation.
While some anticipate a notable deposit shift to secondary financial institutions, others predict the impact may be more limited. The current interest rate gap between commercial and savings banks is relatively narrow—around 3.35% for a one-year deposit at major banks, compared to 3.55% at savings banks, a difference of just 0.2 percentage points. For example, transferring 48 million won from a commercial to a savings bank would yield only about 80,000 won more in annual interest. “There likely won’t be many people moving such large amounts just to earn an extra 80,000 won,” a commercial bank representative said, adding, “In fact, we expect that the higher cap might even increase consumer trust in keeping their deposits with major banks.”
