Smart Asset Management Starting from the Meaning of Deposit: The Complete Guide to Using Fixed Deposits

An office worker’s salary comes in and goes out immediately, and the bank account is always at zero. Everyone experiences this concern at least once. There are many talks about low interest rate environments, and some argue that you can’t become wealthy just with savings accounts, but the reality is a bit different. By understanding the true meaning of deposits and utilizing them properly, you can sufficiently increase your assets through appropriate financial products. Especially if you have extra funds, fixed-term deposits are a good option worth considering.

Understanding the Meaning and Basic Structure of Deposits

Meaning of deposits: Starting from the basics

The meaning of deposits is simple. It refers to a financial transaction where you entrust your money to a financial institution and receive interest in return. From the bank’s perspective, it’s lending out customer funds, and from the depositor’s perspective, it’s a safe investment activity expecting returns.

What is a fixed-term deposit?

A fixed-term deposit is a product where you deposit a specified amount of money into a bank for a set period, and at maturity, you receive the agreed-upon interest in a lump sum. While you cannot withdraw funds midway, it offers much higher interest rates compared to regular savings accounts with free deposits and withdrawals.

Applying the meaning of deposits to real life: For example, if you open a 10 million won fixed-term deposit for one year, you will receive the principal plus the contracted interest after 12 months. As of March 2025, the annual interest rate for a one-year fixed deposit is around 2-3%, so you can expect an interest income of about 200,000 to 300,000 won.

Main differences from regular savings accounts

Savings accounts differ from fixed-term deposits. Regular savings involve depositing a fixed amount monthly and receiving the principal and interest after the set period. It’s advantageous because you can start with small amounts, but the actual interest paid is generally lower than fixed deposits.

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Why do fixed-term deposits offer higher interest rates?

Banks pay higher interest on fixed-term deposits for economic reasons. Fixed-term deposit customers agree not to withdraw their funds for a certain period. From the bank’s perspective, this allows stable use of these funds for long-term loans or investments.

In contrast, active savings accounts( with flexible withdrawals can be accessed anytime, so banks face restrictions in fund management. Therefore, interest rates are set lower.

Looking at the interest rate environment in 2025, as the base rate stabilizes, certain banks’ high-interest products are gaining attention. For example, 3-year fixed deposits offer annual rates of around 2.5-3.5%, providing higher yields than short-term products.

The biggest advantage of fixed-term deposits: Principal guarantee and deposit insurance

The greatest strength of fixed-term deposits is that the principal is guaranteed. Unlike stocks or funds, they are not affected by market volatility, so there’s no risk of a sharp decline in asset value.

According to Korea’s Deposit Protection Act, up to 50 million won per person per bank is protected for principal and interest. Even if the bank goes bankrupt, the Korea Deposit Insurance Corporation pays out the amount, allowing you to entrust your assets with peace of mind.

Important info: The Deposit Protection Act was amended in December 2024, and the coverage limit is scheduled to increase to 100 million won within a year. If you plan to deposit more than 50 million won, it’s wise to diversify across multiple banks.

How to choose the right fixed-term deposit for you?

) Comparing interest rates: The top priority

The first criterion for product selection is the interest rate. Using the ‘Deposit Product Interest Rate Comparison’ menu on the Korea Federation of Banks consumer portal, you can compare bank rates at a glance. Even with the same maturity, differences of 0.5-1% can occur between banks, so careful comparison makes a difference in returns.

Utilizing preferential interest rate conditions

Most banks offer preferential rates to customers who meet certain conditions. These include salary transfers, credit card payments, or subscribing to other savings products. Maximize the conditions applicable to you, as they can add an extra 0.3-0.5% to the base rate.

Deciding the deposit period: Key points

Don’t decide solely based on ‘the longer, the better.’ Generally, longer periods yield higher interest, but early withdrawal penalties apply. It’s important to understand your cash flow plan precisely and choose the period accordingly.

Simple interest vs compound interest: For long-term investors, choose compound interest

Fixed-term deposits are divided into two based on how interest is paid:

Simple interest: Calculated only on the principal. For example, investing 1 million won at 10% simple interest for 3 years yields 100,000 won interest annually, totaling 300,000 won.

Compound interest: Interest is calculated on both the principal and accumulated interest. Investing 1 million won at 10% compound interest results in 1 year: 1.1 million won, 2 years: 1.21 million won, 3 years: 1.331 million won. Over time, the difference in returns becomes significant.

For long-term investments### over 3 years(, opt for compound interest products. For short-term investments, the difference is minimal, but over 5 years or more, the power of compound interest becomes clear.

) Don’t miss out on tax benefits

Certain groups such as those aged 65 and over, disabled persons, or independence patriots can enjoy tax exemptions on interest earned from fixed deposits. If you qualify, be sure to utilize these benefits.

Practical tips for smart financial management

‘Windmill’ strategy for fixed-term deposits

The windmill strategy involves depositing a fixed amount into a fixed-term deposit each month and reinvesting the matured deposit into a new fixed-term deposit. The advantages are threefold:

First, it allows you to enjoy the benefits of compound interest. Second, since maturities are staggered, you can withdraw some funds whenever needed. Third, it encourages consistent savings.

Don’t miss out on special high-interest fixed deposits

Banks frequently launch high-interest fixed deposits. These products often offer 0.5-1% higher rates than standard, but may have strict conditions or very short sales periods. Regularly check bank news and act quickly when good products appear.

Using fixed-term deposit collateral loans

If you need quick cash but don’t want to break your fixed deposit, you can take out a loan secured by the deposit. It usually offers much lower interest rates than unsecured loans and has no early termination fees.

How different investor types can utilize fixed-term deposits

Short-term investor strategies

Use 6-month to 1-year fixed deposits. During periods of rising interest rates, short-term products are especially advantageous. If rates are expected to continue rising, repeatedly subscribing to short-term products is wise.

Long-term investor strategies

If you need funds in 3-5 years, such as for marriage or house purchase, choose long-term fixed deposits### over 3 years(. The power of compound interest and higher rates can steadily grow your assets.

However, avoid early withdrawals, which can cause significant losses. Only subscribe with funds you truly don’t need in the short term.

How to succeed with fixed-term deposits

Fixed-term deposits are a reliable choice for those seeking stable asset growth. But they’re not suitable for every investor. Consider your financial situation, investment goals, and risk appetite comprehensively when selecting products.

Understanding the meaning of deposits, distinguishing between fixed deposits and savings accounts, and grasping the mechanisms of simple and compound interest will enable wise financial decisions. Compare bank rates via the Korea Federation of Banks consumer portal, choose the right maturity and product, and make good use of fixed-term deposits for safe and efficient asset management.