Getting a time deposit at a Korean bank

Submit your banking questions to farnsworth@shinhan.com — Ed.

Dear Michelle,

What is a time deposit?

~Deposit in Time

Dear Deposit in Time,

A time deposit (also called a term deposit) is a savings product that is provided by and available at your local bank. 

Time deposits are considered risk-free investments because you will earn a fixed interest rate. You can calculate exactly how much you will earn at the end of the deposit term — there is no uncertainty. Most importantly, they are insured by the Korea Deposit Insurance Corporation (KDIC) under the Depositor Protection Act for up to and including 50 million won, including principal and interest, per person, per bank.

The basic concept of the time deposit is that you deposit a lump sum (your principal) into an interest-earning account for a fixed amount of time (usually anywhere between 1 month and 5 years). The day that you open the time deposit, you lock into the interest rate posted by the bank on that day for the entire period of your deposit: The theory being that the longer the term of the deposit, the higher the interest rate you can earn. At maturity, you receive your principal plus the accumulated interest that you were promised on the day that you opened the account.

A 15.4 percent capital gains tax on your profit will be deducted automatically. 

You can open either a won time deposit or a time deposit in the foreign currency of your choice. Each currency has a different interest rate that is posted daily by each bank.

It is important to note that the interest rate you receive on a typical time deposit will most likely be a simple interest rate that is applied per annum. A common misconception is that your interest is calculated and added to your principal each month, and then the next month, the interest is calculated again based on your growing principal. But, this is not the way a typical time deposit works. However, most banks do have this type of compound interest time deposit available if you ask (but you will likely earn a lower interest rate to offset those compounded earnings).

If for some reason you need to cancel the time deposit before the maturity date, it is important to know the bank’s cancelation policy. Most of the time deposits in Korea do not charge any cancelation fees. However, you will only receive a portion of the interest rate that you were promised on the day that you opened the account.

Remember that banks will usually offer many types of time deposits and not all of them will have the exact specifications described here. It is always a good idea to review the terms and conditions of your specific time deposit with your bank teller.

Banking Questions: Michelle Answers is a monthly column. Michelle is an eight-year resident of Korea who is the foreign client relationship manager at the Shinhan Bank Seoul Global Center — the only bank branch in Korea that is exclusively dedicated to serving expats and foreign companies. Please visit the Shinhan Bank Seoul Global Center on Facebook for more information. The banking information provided in this column is based on Shinhan Bank policies and may not be applicable to all banks in Korea. — Ed.