Korea’s savings banks slashed interest rates on time deposits to below 2 percent, approaching the levels offered by commercial banks, amid the central bank’s record-low key rate policy.  

The average interest rate on 90 fixed-term deposit products with a one-year maturity declined to 1.99 percent a year as of Tuesday, from the 2.67 percent recorded on Jan. 1 last year, according to data from the Korea Federation of Savings Banks on Thursday.

The data showed that 2.32 percent was the highest rate on the products offered by savings banks and 1.71 percent was the lowest.

Rates contracted after briefly shooting up in January when they stood at an average 2.29 percent as savings banks rolled out higher-rate products during the year-end in a bid to retain existing customers with maturing accounts.

Amid a prolonged period of low interest rates here, a growing number of Korean consumers had opted for savings banks which provided higher rates of interest than commercial banks.

But as savings banks are constantly cutting their rates, the gap between the two has narrowed.

According to the Bank of Korea, commercial banks’ interest rates on fixed-term deposits started to fall below 2 percent in March last year, and have stayed in the range of between 1.15 percent and 1.9 percent.

The BOK-set seven-day repurchase rate has stood at a record-low of 1.5 percent for eight months running. It will next review the rate on March 10.

By Park Han-na (hnpark@heraldcorp.com)