South Korea’s bank deposit interest rates plunged to their lowest level in three years even as loan rates continue rising, tightening the financial squeeze on households already strained by economic uncertainty.

The decline follows the Bank of Korea’s decision on May 29th, 2025, to cut the policy rate by 0.25 percentage points, prompting major commercial banks to follow suit with deposit rate cuts.

KB Kookmin Bank will reduce interest rates on fixed-term deposit products by up to 0.25 percentage points from June 9th onwards. Its general deposit rate for terms of 36 months or more will fall from 2.4 percent to 2.2 percent.

Other banks are also making similar adjustments. Industrial Bank of Korea will lower interest rates on 17 deposit and savings products by up to 0.25 percentage points from June 9th, while Hana Bank already cut rates on its housing deposit accounts by 0.3 percentage points on Thursday, bringing them down to 2.1 percent.

Borrowing costs, however, have been on the rise as banks are preemptively reining in household lending in anticipation of stricter debt service requirements. Tighter measures that form part of the third phase of the current debt-to-service ratio (DSR) are set to take effect in July 2025.

KB Kookmin Bank raised the lower bound of its non-face-to-face apartment mortgage loan from 3.7 percent to 3.87 percent, a 0.17 percentage point increase. Woori Bank also raised interest rates on both variable and 5-year fixed-rate mortgage loans by 0.06 percentage points in May 2025.

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