Life in Korea

Korean Installment Time Deposit Interest Computation

Several people have asked me why the amount they got wasn’t equal to the percentage promised by the bank. Let’s take Kookmin Bank’s 6.5% interest rate for example. I applied for a fixed time deposit account (국민행복적금) with the maximum monthly deposit of 500,000 KRW automatically transferred from my regular KB account. Now why is the interest I earned wasn’t 390,000 KRW, 6.5 % of the 6,000,000 KRW total deposit? Remember that this is an installment time deposit account and here’s how it works.

Maturity Receipt

Kookmin Happy Savings (국민행복적금)

  • Monthly deposit: 500,000 won
  • Term: 12 months
  • Interest rate: 6.5%
  • Tax rate: 15.4%
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On the first month, I got the full 6.5% of my deposit as the bank got hold of my money for the whole term. On the last month, it’s only 1/12 of the interest as the bank got hold of my money for only a month.
  • Fixed account 6.5% : Fixed amount every month (you can choose the date)
  • Free account 5.5% : You can deposit any amount once a month

Deposit amount: Up to 500,000 KRW

If you have free savings account, you can compute the interest that you can earn simply by changing the amount of deposit every month. Some people think that when they are quoted an interest rate, they will get it no matter how long the holding period is. That is wrong. That quoted rate is for a particular term and you can only earn it if you let the bank keep your money for the whole term. Happy saving! 🙂