Deposits vs. installment savings
- Deposit (lump sum): put in a lump sum and leave it until maturity. Interest applies to the full amount for the whole period.
- Installment savings: deposit a set amount every month. The first month's money earns 12 months of interest and the last month's only 1, so actual interest is about half the stated rate.
Installment savings interest example (simple)
₩1M a month at 4% for 12 months: interest = ₩1M × 4% × (12+11+…+1)/12 = ₩260,000 (pre-tax). After 15.4% tax, about ₩219,960.
Taxes on interest
- Standard 15.4% (income tax 14% + local income tax 1.4%)
- Tax-favored 9.5% (1.4% for member deposits at NongHyup, Suhyup, credit unions and Saemaul Geumgo etc.)
- Tax-free 0% (when requirements are met, e.g. tax-free comprehensive savings)
FAQ
If savings pay 5%, do I get 5% interest?
No. Because you deposit monthly, actual interest on 1-year savings is about 2.7% of total principal (at 5% simple interest).