Why Bond Investing Beats Bank Deposits

The wealthy love investing in bonds. There must be a reason, right?
Is there a rule that only the rich can invest in bonds?
Let's learn about bonds too, fellow office workers
As of November 2024, the market capitalization of domestic bonds is 2,500 trillion won, larger than the stock market capitalization (2,011 trillion)
Despite having many advantages over deposits, bonds have mainly been invested in by high-net-worth individuals and institutions due to limits in financial literacy and accessibility.
However, as market interest rates rose after COVID-19, interest in bond investing grew.
Individual bond investment rose from about 4.5 trillion won in 2021 to about 40 trillion won in 2023, but individual investment is still small compared with the overall market size.

1. Advantages of bond investing
1) Tax savings
- Thanks to tax exemption on bond trading gains, investing 300 million won can save up to 6.75 million won in taxes compared with a deposit (5%)
- Various other ways to save on taxes exist
2) Excellent liquidity
- Unlike deposits, bonds can be turned into cash by selling before maturity, without losing interest due to early termination
- For 300 million won in a 2-year deposit vs. bonds, cashing out after 1 year can yield an additional 9 million won in returns
3) High returns
- Bonds generally offer higher interest rates than deposits, and there is a wide range of bonds with short maturities of 3-6 months and high rates
- In the current rate-cutting period, trading gains are possible as bond prices rise
- Investing 300 million won, if rates fall from 4% -> 2%, bond prices rise 20% (trading gain of 60 million won possible)
4) Product variety
- A wide range of maturities (1 day ~ 30 years) to choose from
- A wide range of interest rates to choose from depending on credit rating
5) Stable cash flow
- Regular monthly/quarterly interest income possible
- Loans available thanks to higher collateral value than stocks