Starting next year, money trust in fixed-term deposits in Korean financial institutions will be protected under the depositor protection act that provides state insurance in returns of up to 50 million won ($42,176) should a financial institution trusted with the money runs into trouble.

According to the Korean financial authorities and financial industry on Monday, the Financial Services Commission (FSC) and the Korea Deposit Insurance Corporation plan to revise the depositor protection law within this month to add customers’ protection on trust funds. The FSC discussed ways to strengthen depositor protection during its 10th meeting on financial reform held on December 16. If the revision plan passes the FSC’s regular meeting and cabinet meeting, depositors will be guaranteed of repayment of up to 50 million won.

The depositor protection act that took effect in 1995 was designed to protect savings of up to 50 million won placed under regular savings accounts such as a demand deposit, savings account such as a fixed deposit and installment savings accounts. The act excluded trust funds that provide returns based on investment performance.

Specified money trust in fixed-term deposits has been drawing many customers as it is safer investment option to stocks or bonds. The financial product entrusts financial institutions to invest customers’ assets of more than 20 million won in fixed accounts of the nation’s commercial banks. The product can yield higher returns when investing in foreign currency accounts that can offer foreign exchange benefit.

According to the Korea Financial Investment Association, money trust invested in fixed deposits surged to 81.33 trillion won as of the end of September this year from 31.15 trillion won in March 2014. Among the total 351 trillion won in the banking trust accounts, assets invested in retirement pension took up the lion’s share of 87.91 trillion won, followed by investment in fixed deposits and bonds.

By Chung Seok-woo and Park Yoon-ye

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