Instead of going ‘all-in’ on Samsung Electronics and SK hynix, how about trying ‘Treasury bonds for individual investors’?

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Provided by the Ministry of Economy and Finance.

Recently, as the domestic stock market has been stuck in a range and policy rates and government bond yields in major economies have risen, more investors are turning to government bonds instead of stocks and bank deposits and savings. In particular, the ‘individual investor Treasury bond’, which has become purchasable through personal retirement pension accounts starting this month, is drawing attention as an alternative. Cited advantages include relatively high returns and principal safety, along with the benefits of compounding and tax savings. We organized what individual investors are likely to wonder before investing in individual investor Treasury bonds in a Q&A format.

-What are individual investor Treasury bonds?

“Government bonds (Treasury bonds) are a type of promissory note issued by the government to borrow funds needed to carry out policy. Among these, individual investor Treasury bonds are savings-type bonds sold exclusively to individuals by the government. They were introduced to broaden the demand base for government bonds and to provide the public with a stable investment vehicle. They have been issued monthly since June 2024 (excluding December).”

-How do they differ from ordinary government bonds?

“Ordinary Treasury bonds can be freely traded in the bond market after issuance, so their prices rise and fall with market interest rates. In contrast, individual investor Treasury bonds cannot be bought or sold to others. No separate market price is formed. If ordinary Treasury bonds are products with the potential for trading gains from interest rate changes, individual investor Treasury bonds are closer to a savings product in which you leave money for a long period and accumulate interest.”

-Where can you buy them? What is the minimum investment?

“You must first open a dedicated account for individual investor Treasury bonds. For now, this is possible only at Mirae Asset Securities. The minimum investment is KRW 100,000, and you can subscribe in KRW 100,000 increments. The annual purchase limit is KRW 200 million per person. Across all financial institutions, only one dedicated account per person can be opened.”

-Can you also invest through a retirement pension account?

“Starting in September this year, you can also purchase 10- and 20-year individual investor Treasury bonds through retirement pension accounts (DC and IRP). This is available at eight institutions: Shinhan·Hana·NH NongHyup Bank, Mirae Asset·Samsung·Korea Investment·KB·NH Investment.”

-What are the differences among the 3·5·10·20-year issues?

“The period you entrust your money for, and the resulting return, differ. For example, with a 10-year issue, you place your money for a 10-year maturity and receive the corresponding interest. Since April this year, a 3-year issue has been added, so the available maturities are now 3·5·10·20 years. The 3-year issue offers a ‘compound-interest bond’ that pays all interest at maturity and a ‘coupon bond’ that pays interest annually. The 5·10·20-year issues apply the compound-interest structure. Only products of 5 years or longer receive separate taxation benefits when held to maturity.”

-How much return can you make by investing in individual investor Treasury bonds?

“The interest rate applied to individual investor Treasury bonds changes every month. Basically, the government adds an ‘additional spread’ to the ‘coupon rate’, which is the auction yield on government bonds of the same maturity in the previous month. For example, the coupon rates for the September issuance this year are 3.780% for 3-year, 4.085% for 5-year, 4.415% for 10-year, and 4.570% for 20-year. On top of this, an additional spread of 0.1 percentage point is added for the 5-year, and 0.35 percentage point for the 10- and 20-year. When held to maturity, the total pre-tax returns are approximately 11.8% for the 3-year compound-interest bond, about 22.8% for 5-year, about 59.3% for 10-year, and about 161% for 20-year. If you invested KRW 10 million, on a pre-tax basis you would receive about KRW 12.28 million after 5 years, about KRW 15.93 million after 10 years, and about KRW 26.10 million after 20 years. However, taxes must be deducted from the actual amount received.”

“Yes. If you hold the 5·10·20-year issues to maturity, interest income generated on purchase amounts up to a total of KRW 200 million is subject to separate taxation at 14%. Including local income tax, the effective tax rate is 15.4%. This interest income is not included in the comprehensive financial income tax base. The 3-year issue, however, is not eligible for separate taxation.”

-If you need money in the middle, can you sell?

“Individual investor Treasury bonds cannot be sold in the market to other investors, unlike stocks or ordinary bonds. However, from the 13th month after the issue date, you may apply to the government for early redemption. Early redemption greatly reduces the benefits. You receive only the principal and interest calculated at the coupon rate; the additional spread, compounding, and separate taxation benefits disappear. In addition, there is a monthly early-redemption quota set by the government, so applying does not guarantee redemption.”

-How do they differ from bank deposits and savings accounts?

“Individual investor Treasury bonds allow you to lock in a long-term rate and receive the benefits of compounding, the additional spread, and separate taxation. If market interest rates fall in the future, you can secure returns above those of deposits and savings. In contrast, deposits and savings generally have short maturities and must be renewed at the prevailing rate at each maturity. In terms of liquidity, deposits are relatively advantageous. Individual investor Treasury bonds cannot be redeemed early within one year, and even afterward, early redemption forfeits the benefits.”

-How do they differ from stock investing?

“With stocks, share prices rise and fall depending on market conditions, so there is a possibility of loss, whereas individual investor Treasury bonds are issued by the state and are safe products with principal and interest guaranteed.”

-Can you receive interest regularly?

“For the 3·5·10·20-year compound-interest bonds, no interest is paid during the holding period, and at maturity the principal and interest calculated on a compound basis are paid in a lump sum. However, the 3-year coupon bond introduced in April this year pays interest annually on a regular basis.”

“It is not possible to gift individual investor Treasury bonds to another person. Unlike ordinary government bonds, individual investor Treasury bonds cannot be used for collateral loans or have pledges established, and except in exceptional cases such as inheritance, bequest, or compulsory execution, transfer of ownership is restricted. However, it is possible to open a dedicated individual investor Treasury bond account in the name of a child and for parents to gift funds to purchase the bond.”

-What type of investor are they suitable for?

“They suit investors who have surplus funds they will not use for a long time and who want to earn stable, fixed returns. In particular, high-net-worth investors with substantial financial income, for whom the value of separate taxation is significant, or investors with long-term spending plans such as retirement or education for children, may consider them.”