Cash management accounts have drawn a large amount of funds as investors prefer parking their money in short-term investment vehicles rather than bank deposits amid record-low interest rates, data showed Friday.
A cash management account refers to a type of account offered by brokerage houses and other financial institutions that allows an account holder to trade equities while earning interest on cash balances.
The net asset value of CMAs reached 49.98 billion won ($45.69 million) as of the end of April, up 2 trillion won from the previous month to hit a record high, according to data compiled by the Korea Financial Investment Association.
The number of accounts also rose from 11.05 million in December to 11.25 million in April, the KFIA said.
The jump came after South Korea’s central bank in March cut the key interest rate to its lowest level ever at 1.75 percent, which in turn drove down interest rates of fixed deposits to below those of CMAs or to similar levels.
The average rate of one-year fixed deposits by 10 major commercial banks was at 1.64 percent, according to industry data, losing allure to CMAs whose annual rates range from 1.6 percent to 1.75 percent and allow more flexible cash management.
“CMAs have became more popular following a decline in bank deposit rates,” Park Hyuk-soo, a researcher at Daishin Securities, said. “It seems like investors have deposited their money in CMAs for stock investment or parked their profits from stock investment.”
The country’s benchmark index, the KOSPI, broke the 2,100-point level to hit a nearly five-year high in mid-April, driven by an increasing pool of money from foreigners and retail investors. (Yonhap)
