As volatility in South Korea’s stock market reaches extreme levels, investor funds are rapidly shifting toward principal-guaranteed products offered by securities firms. In particular, promissory notes and Comprehensive Investment Accounts (IMAs) are attracting the attention of stability-focused investors by offering higher interest rates than bank deposits.
According to financial industry sources on the 9th, one-year promissory note rates at major securities firms have risen from the high 2% range late last year to around 3.6% recently, climbing nearly one percentage point. This is interpreted as the result of securities firms competing on rates to secure funding, despite the Bank of Korea’s monetary easing stance.
By firm, Korea Investment & Securities is offering an annual rate of 3.85%, followed by NH Investment & Securities at 3.8% and Mirae Asset Securities at 3.65%. Notably, Korea Investment & Securities’ “First Promissory Note Special Offering” product drew significant investor attention by offering a rate of 4.7% per annum. Kiwoom Securities also sold a special offering promissory note last month with a 4.0% annual rate, capped at 100 billion won (approximately $70.6 million), to commemorate the launch of its retirement pension product.
Promissory notes are instruments issued by securities firms based on their own credit, guaranteeing an agreed-upon yield with a maturity of one year or less. The product structure is similar to bank deposits, divided into on-demand types that allow frequent deposits and withdrawals, and fixed-maturity types with a set investment period. However, investors should note that these are not covered by South Korea’s Depositor Protection Act, meaning principal losses could occur if the issuing securities firm goes bankrupt.
The aggressive rate hikes by securities firms are driven by stock market instability. As equity market volatility expands, investors are exiting risk assets and turning their attention to relatively safer principal-guaranteed products. Securities firms are actively courting customers by leveraging yields higher than deposit rates to capture this demand.
Alongside promissory notes, Comprehensive Investment Accounts (IMAs) are also gaining traction. IMAs operate by investing customer deposits in safe assets such as government bonds and commercial paper (CP) to deliver agreed-upon returns, with rates determined by the securities firm’s creditworthiness, similar to promissory notes. Considering that one-year fixed deposit rates at commercial banks currently remain in the mid-2% range, the rates on securities firms’ promissory notes and IMAs are relatively attractive.
An industry insider from the financial investment sector commented, “As stock market volatility increases, demand for deploying short-term funds is growing.” The source forecast that “promissory notes and IMAs offer higher rates than bank deposits while maintaining relatively stable product structures, so their popularity is likely to persist for the time being.”