Dubai: Depositors looking for higher returns on their cash balances this year could be in for a tough time as interest rates have dropped and seem to be heading lower.
According to Preeti Bhambri, managing director and founder of MoneyCamel.com, a personal finance site in the UAE, investment options for savers “are sparingly few”, with rates “decreasing by the month” and likely to fall further.
“Rates have dropped by almost 50 basis points in the last one year,” she told Gulf News.
“A few investment options are deposits, e-saver accounts and savings accounts. Actually, you can knock off savings account from the list, as they offer a negligible rate of interest,” Bhambri added.
As of last week, the National Bank of Abu Dhabi is offering 0.075 per cent for savings deposits, down from 0.1250 per cent a year ago. The bank’s fixed deposit rate for 12 months is pegged at 0.1460 per cent for Dh1 million, compared to 0.74 per cent a year ago for the same amount.
At Mashreq, savings deposit rate remains steady, but for fixed deposits, rates dropped from 2.29 per cent last year to 1.25 per cent. At the same time, Barclays’ savings deposit rate for a three-month tenor moved several notches down from 1.27 per cent to 1 per cent over the same period.
The declining interest rates can be attributed to the influx of foreign funds, among other factors. “There are two basic reasons why interest rates are falling. The first is that there is a huge influx of foreign funds due to the Arab spring and European Union crisis. Secondly, the Central Bank has limited the investment avenues for banks in UAE,” Bhambri said.
“The new restriction on loan-to-value cap on mortgages could potentially reduce the interest rates even further,” she added.
With rates falling, depositors are advised to shop for the best rates and consider better options such as fixed deposits and e-saver or online accounts. “An e-saver account is a great option for customers who have an amount of less than Dh10,000 to invest. E-saver accounts offer high interest rates with flexibility on tenure and withdrawal. The rates are comparable to fixed deposit rates for a long tenure,” said Bhambri.