A 10-year Korean Individual Investor Treasury Bond (gaein tujayong gukchae) carries an applied rate of 4.520% per year if held to maturity — a 3.520% coupon plus a 1.0 percentage point premium, per the February issuance terms reported by Edaily MarketIn. The 20-year tranche that month paid 3.568% plus 1.1 points, or 4.665%; the 5-year paid 3.385% plus 0.2 points, or 3.585%.
The rate is quoted in two pieces for a reason. The second piece — the premium — is paid only to holders who stay until maturity. Annual compounding and the separate-taxation treatment of interest hang on the same condition. Redeem early and all three vanish at once, leaving only coupon interest. Comparing the coupon alone against a bank deposit rate is where most readers go wrong.
The coupon and the premium only mean something together
The coupon on these bonds simply copies the auction yield of the previous month's government bond of the same maturity. The premium on top is set and published fresh each month based on market conditions. Two buyers of the same 10-year bond can therefore lock in different rates depending on which month they subscribed.
Line up February's three tranches and the logic of the premium becomes visible: 0.2 points on the 5-year, 1.0 on the 10-year, 1.1 on the 20-year. The longer the lock-up, the bigger the add-on. January followed the same ordering at 0.3, 1.0 and 1.25 points. The premium is the price the government pays for duration.
Purchase terms are identical across maturities: a 100,000 won minimum in whole multiples, up to 200 million won per person per year. When subscriptions exceed the monthly ceiling, the first 3 million won of each order is filled in full and only the excess is allocated pro rata. February's issuance totaled 170 billion won — 60 billion in 5-year, 80 billion in 10-year, 30 billion in 20-year — with subscriptions open from February 6 to 12. Because of the flat-allocation floor, a 3 million won order and a 30 million won order end up closer in outcome than the headline competition ratio suggests.
What 10 million won actually returns after tax
The table below applies February's rates directly. Interest compounds annually and is paid in a single lump sum with principal at maturity. Tax is 15.4% including local surtax, applied to the full interest amount.
| Item | 5-year | 10-year | 20-year |
|---|---|---|---|
| Applied rate (coupon + premium, %) | 3.585 | 4.520 | 4.665 |
| Maturity proceeds (KRW) | 11,925,712 | 15,559,441 | 24,890,260 |
| Interest (KRW) | 1,925,712 | 5,559,441 | 14,890,260 |
| Tax at 15.4% (KRW) | 296,560 | 856,154 | 2,293,100 |
| After-tax proceeds (KRW) | 11,629,152 | 14,703,287 | 22,597,160 |
| After-tax annualized return (%) | 3.06 | 3.93 | 4.16 |
The coupon gap between the 5-year and the 20-year is only 0.183 points. The after-tax annualized return gap is 1.10 points — 3.06% versus 4.16%. Almost all of that spread comes from the premium (0.2 versus 1.1 points) and from time spent compounding. Of the 20-year's 12.59 million won in after-tax interest, roughly 9.33 million would have accrued on a simple-interest basis; the remaining 3 million-plus is the compounding tail.
Three conditions break this table. The premium resets monthly, so a different subscription month means different rates. If the planned shift to coupon-paying structure goes through, the annual-compounding assumption collapses. And an early redemption voids every figure above. For the mechanics of how bond prices move with rates, see how to calculate duration and price sensitivity.
The premium, the compounding and the separate taxation are not three benefits — they are one bundle, tied to a single condition: hold to maturity.
How much does separate taxation actually save?
Interest is taxed at 14% (15.4% with local surtax) on purchases up to a cumulative 200 million won, provided the bond is held to maturity. The lower rate matters less than the exclusion from Korea's aggregate financial-income taxation. Under a lump-sum structure, twenty years of interest lands in a single tax year.
| Tax treatment | Rate (%) | Tax (KRW) | After-tax interest (KRW) |
|---|---|---|---|
| Separate taxation | 15.4 | 2,293,100 | 12,597,160 |
| Aggregate, middle bracket | 26.4 | 3,931,029 | 10,959,231 |
| Aggregate, upper bracket | 38.5 | 5,732,750 | 9,157,510 |
| Aggregate, top bracket | 49.5 | 7,370,679 | 7,519,581 |
For a top-bracket taxpayer, the carve-out is worth 5.07 million won on a 10 million won position. Even in the middle bracket it is 1.64 million won. Where you sit depends on your other interest and dividends that year — start with the 20 million won aggregate-income threshold and the health-insurance trigger.
What disappears if you redeem early
Early redemption is available one year after purchase. The premium, the compounding and the separate taxation all drop out; only coupon interest is paid.
Take the February 10-year bond redeemed in year five. The 3.520% coupon applied as simple interest for five years yields 1.76 million won — about 32% of the 5,559,441 won that would accrue by maturity. Half the holding period, less than a third of the interest. Interest also rejoins aggregate financial income, so in a year with heavy dividends the effective rate climbs further.
Policymakers read this as a barrier to entry. Bonds issued between June and December 2024 were granted a redemption window in January 2026, and even then only coupon interest was paid. If a twenty-year lock-up is not realistic, the arithmetic argues against buying the 20-year in the first place.
What changed in 2026: a 3-year tranche, coupon payments, retirement accounts
Per Korea Policy Briefing, 2026 issuance is set at 2 trillion won for the year. January allocated 140 billion won: 90 billion in 5-year, 40 billion in 10-year, 10 billion in 20-year.
Four changes matter. A 3-year tranche launched in April — lower lock-up, but no separate-taxation benefit, and issued as a coupon-paying bond. Premiums on the 10- and 20-year are slated to widen past 100 basis points. From the second half of the year, DC-type retirement plans and IRP accounts can hold the 10- and 20-year bonds; in that case the account's own rules apply — contribution tax credits and 3.3–5.5% separate taxation on pension withdrawals — rather than the bond's carve-out. The account mechanics differ enough that it is worth reviewing how pension savings accounts and IRPs differ on credit limits and withdrawal rules first.
Fourth, the 5-year-and-longer tranches are also slated to convert to coupon payments during 2026, distributing coupon-level interest once a year. If that lands, the table above has to be rewritten: compounding shrinks, but so does the concentration of taxable income in a single year.
What to watch
- The prior month's government bond auction yield — it becomes the coupon verbatim
- The monthly published premium by tranche — February's 1.0 and 1.1 points are the benchmark
- The effective date of the coupon-payment conversion, which resets both compounding and tax timing
- Your other financial income in the maturity year; amounts above the 200 million won purchase cap are aggregated
- Whether the separate-taxation special provision is extended
- Which tranches and limits actually become available inside retirement accounts