What you should first check before investing in nest-egg savings?

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Do you remember our previous posting about ‘nest-egg savings’? To explain it briefly, nest-egg saving is a financial product which gives higher interest maximum 4.6% and tax exemptions to make it easier for office workers to accumulate assets through savings. This financial product is returned in 18 years since it had been abolished to make people accumulate their property efficiently. At first sight it sounds fascinating, in fact it really is, but like all other financial products, nest-egg savings call for caution as well.

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Firstly, you have to check whether you’re qualified worker whose annual salary is below 50 million won and business operator whose general income tax is below 35 million won can make nest-egg savings. You have to hand in your income certificate to the financial institution where you’re making nest-egg savings. Newly-employed workers and new business operators without income certificate of previous year cannot make nest-egg savings.

Secondly, the subscription period is minimum 7years which is long-term savings. You have to be careful whether you should join nest-egg savings, because if you close before it matures you’ll suffer from disadvantages. In case of installment savings, you’ll be excluded from tax exemption and the interest rate that had been applied will drop to half the market interest rate. In case of fund and insurance, you’ll be excluded from tax exemption and there’s possibility that initial investment cannot be retrieved. To prevent you from closing savings before maturity, you should carefully scrutinize your future cash need considering big events such as marriage. Then you decide whether you’re okay to make nest-egg savings and how much you can afford to put in the savings.

Third, higher interest rate is not guaranteed after three years. You can enjoy higher interest rate maximum 4.6% only for three years, and after that, annually different interest rate will be applied. It means there’s a risk the interest rate can drop sharply after three years, which will make less return than you expected. It depends on future market situation, so keep in mind that interest rate will not be still but fluctuate.

Lastly, key interest rates, prime rate, offering period all vary from financial institutions to another. In case of bank, the key interest rate is roughly 3.4%~4.3% and 0.1%~0.4% of prime rate is added depending on the use of credit card, automatic transfer, opening new bank account and so on. You can find different key interest rates of banks compared in one site, which is posted on the webpage of Korea Federation of Banks (www.kfb.or.kr). What you have to check is not only prime rate but offering period because it varies from first three years to the maturity. For your information, 0.2% prime rate for seven years is more advantageous than 0.3% prime rate for the first three years.

I was also glad and alarmed at the return of ‘nest-egg savings’, but a few days later on the newsletter I read some cautions on this issue so that I wanted to let you guys know. Financial organizations try to regulate unfair operations of ‘nest-egg savings’, but I think the most important thing is that we know of these details of financial product. I hope nothing bad comes up in the way you plan your future.

By Yeajin Shim (greatshimbabe@gmail.com) 

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