CAMP RED CLOUD, South Korea — Americans may not have to wander far outside the base gates for a relatively safe investment with above average yields.
As the South Korean currency plummets to 10-year lows, the nation’s banks are aching for scarce U.S. dollars, and they’re willing to pay hefty interest rates for them.
On Friday, Stars and Stripes found that South Korea’s top banks are paying roughly 5.6 percent for one-month term deposit accounts, and as much as 6.6 percent for six-month deposit accounts.
The average rate for a certificate of deposit in the United States is 3.64 percent, according to Bankrate.com.
South Korean deposit accounts are not savings accounts. They are similar to CDs, but in some cases are easier to break without penalty.
Once a foreigner establishes identity via a passport or military identification card, he or she can buy a U.S. dollar deposit account without any minimum or maximum balance, fees or further documentation, said Hwang Il, of Kookmin Bank’s foreign exchange product department.
"The dollars are needed," Hwang said. "We are returning what we’ve got to our customers since interest rates are high, resulting from the global credit crisis."
Rates at South Korean banks do fluctuate daily but should remain high in the near term, economists say.
The world’s economic downturn has left foreign investors pulling their dollars out of South Korea’s economy at a torrid pace.
When foreign investors get their dollars and euros back, they leave behind what they’ve exchanged — an excess supply of South Korea’s won.
That has combined with the global shortage of money available for borrowing to stoke a rush for dollars.
South Korea’s top banks have already loaned out far more money than they have in their own accounts, meaning they’re more willing to pay more in interest rates for new funds.
Investments in South Korean accounts are low risk, but not risk-free.
South Korean banks insure depositors against bank failures up to 50,000,000 won, in a manner similar to the U.S. Federal Deposit Insurance Corporation — but that guarantee doesn’t extend to dollars.
This month, Moody’s Investor Service lowered its financial strength outlook of Korea’s four biggest banks — Kookmin, Woori, Shinhan and Hana — from "stable" to "negative."
The outlook doesn’t affect their credit rating or mean that they’re going bankrupt, but it reflects a poor opinion of their balance sheets as a result of the global credit shortage.
However, South Korea had $239 billion in foreign currency reserves at the end of September, sixth most in the world, according to the national Bank of Korea.
It has used some of those reserves in recent months to support the won and would almost certainly act if South Korean banks looked as if they would fail, both private and government financial experts say.
"We can say usually South Korean banks are safe and strong enough after massive, painful restructuring from the International Monetary Fund (in 1997 and 1998)," said spokesman Cho Chung-hang of the Korea Finance Service Commission. "It is very unlikely that Korea’s banks would shut down their businesses."
Some current rates on U.S. dollar depositsBecause of a shortage of dollars, South Korean banks are offering interest rates on U.S. dollar deposits that dwarf the current average 3.64 percent return on a one-year certificate of deposit in the United States.
Each of these banks say they have English-speaking personnel at their Itaewon and Yongsan branches in Seoul and may have English speakers in other branches.
The following rates were available for deposit accounts in U.S. dollars during the past week and may change due to market conditions:
Kookmin Bank (Phone: 1599-9999, 1588-9999)One week, 3.79%; one month, 5.63%; three months, 5.99%; six months, 6.38%; one year, 6.15%
KEB Bank (Phone: 1544-3000, 1588-3500)One week, 5.38%; one month, 6.22%; three months, 6.69%; six months, 6.69%; one year, 5.24%
Woori Bank (Phone: 1599-5000, 1588-5000)One week, 3.70%; one month, 5.63%; three months, 5.63%; six months, 5.75%; one year, 5.75%
— Stars and Stripes
