Dubai: It seems like money still flows in abundance on this side of the planet.
Every week, at least one new millionaire emerges in the UAE, thanks to banks who, despite reported tight liquidity, are giving away millions of dirhams to its loyal clients.
Welcome to the age of raffle-cum-saving-schemes, an innovative way of driving up people's savings behaviour.
The offer couldn't be more enticing. In exchange for an initial investment of Dh100 to Dh2,500, consumer banking clients get a life-changing chance to walk away with Dh1 million - and eventually live their dreams.
Products being offered range from Sharia-compliant bonds to savings deposit accounts and certificates. Although some of these don't earn interests, financial experts aren't advising anyone against investing in them.
"These types of product can play a part in a balanced portfolio of assets. An investor may choose to have some liquid cash earning very little interest, then a notice account offering a guaranteed dividend in return for locking the money away for a short period," said Darren Ashley, Managing Director at Candour Consultancy.
At National Bonds Corporation, any UAE or GCC national, expats and even tourists can get the chance to win Dh1 million by opening an account and purchasing a minimum of Dh100 worth of bonds.
Each bond costs Dh10.
However, the investor must not be less than 16 years old, although a parent or guardian can purchase bonds on a minor's behalf.
No entry fee or redemption fee is imposed. Your money will be held for a minimum period of 30 days upon purchase of the bonds before you can redeem it. This restriction is not applicable to bonds issued as prizes or as profit shares.
Since May 9, National Bonds has given away 101 prizes amounting to Dh1.155 million each week. Prizes range from Dh500, Dh1,000, Dh5,000, Dh10,000 and Dh1 million.
"Through the weekly prize draws, we will reward over Dh60 million in prizes and make 39 new millionaires in 2009," the company said.
If you don't win in any of the weekly draws, there's no reason to despair. Your investment will still give you additional income.
National Bonds' savings programme works on a profit distribution scheme, whereby 20 per cent of the profits made by the corporation will be distributed among bondholders at the end of the financial year.
The profit distribution will be based on the number of bonds and how long they were held during the related financial year.
"In 2007, bondholders received profit of 6.03 per cent and in 2008, they reaped even higher dividends-a 7.07 per cent annual profit rate. This is the highest growth of 17.25 per cent in their profit rate in 2008 as compared to the previous year," said Mohammed Qasim Al Ali, CEO of National Bonds Corporation.
"In fact, return of 7.07 per cent in 2008 far exceeded people's expectations amid the current global climate and was also the highest against any comparable savings scheme offered by any financial institution in the UAE," he added.
Another bank joining the prize craze is Mashreq.
The bank's MashreqMillionaire saving certificates programme qualifies each investor to win Dh1 million, which is given away every week. Draws used to be held once a month, but since February 15, the bank increased the draw frequency to weekly.
All UAE residents, nationals, expats and tourists are eligible to join.
Anyone interested only needs to invest a minimum of Dh1,000 - the value of each certificate.
The money is fully redeemable at any time. A nominal processing fee of Dh35 per application, regardless of the number of certificates purchased, is required.
This product, however, does not provide interest on your investment, unlike the standard bank account.
But investors are offered a free savings account without a required minimum balance, a debit card and a credit card. They can also avail themselves of an overdraft facility up to 90 per cent of the total certificates value.
"This savings product does not earn customers any unwanted petty interest. Currently, interest rate on savings in the market is about four per cent which works out to be Dh40 earnings per annum on an investment of Dh1,000. It's worth mentioning that not everybody saves for interest," said Omar Asghar, Head of Mashreq's Wealth Management.
"All MashreqMillionaire does for its customers is that it drives the savings behaviour, allows customers to save for their future and at the same time gives them 52 opportunities in a year to become millionaires and fulfill their dreams-dreams which may not be fulfilled otherwise," he added.
At Dubai Bank, the Kunooz Value Plus account dangles enticing prizes like Dh30,000 every 24 hours and Dh1 million every month, aside from "indicative annual returns".
To be eligible for the prize draws, anyone-workers, housewives, senior citizens or even minors has to open a Kunooz Value Plus account and maintain the funds required.
The more the customer saves the more entries he or she gets into the draw.
Clients can also withdraw from their savings as they will get an ATM card when they open this type of account.
"This unique account avoids the need for issuance of certificates to be enrolled into the draw. The account can be opened with a minimum deposit of Dh2,500. Each multiple of Dh1,000 in the account will give the customer a chance to win daily cash prize of Dh30,000 and each Dh5,000 deposit gives the customer a chance to participate in the monthly cash prize draw for Dh1 million," explained Mohamed Amiri, Head of Retail Banking at Dubai Bank.
At Union National Bank, the Al Awwal savings scheme gives depositors a chance to win monthly and quarterly prizes by purchasing certificates in various denominations.
Depositors can win up to Dh1 million per quarter and up to half a million every month.
The Al Awwal Gold, a variant of the product, offers a return of two per cent per annum with a minimum investment of Dh30,000.
Depositors can also withdraw their investment anytime and they will also get a free credit card with a credit limit of up to 95 per cent of the Al Awwal amount and an overdraft facility up to 80 per cent of the certificate's face value.
Financial advisers have nothing against these bank products, although they are less likely to outpace the returns offered by mutual funds or other investment schemes.
The financial rewards they offer may be bigger than what a regular savings account does, but many people may still prefer cash deposits because these are considered low risk.
"There are so many of these types of product available at present because the banks are short of liquid cash so they are offering these products to improve their liquidity and enable them to resume their normal activities. The more profit they make on your money, the more they are likely to give you back. While these products are likely to return more than a standard bank account, it is unlikely they will outperform equities over the next couple of years given the current depressed state of the world's equity markets," explained Ashley.
These products are entirely different from investing in mutual funds or other types of bonds, according to Steve Gregory, Director of Technical Services at Holborn Assets.
In deposit-based funds, the bank keeps the deposits and estimates what share of its future profits it can commit to paying their customers.
"The bank offerings allow clients to participate in the profits the bank makes from using the client's money. Whether such a deal pays a guarantee of profit or interest depends on the structure. Either some clients win prizes while others get nothing, or all clients are rewarded according to the size of their deposits," said Gregory.
"There is always a risk any time you hand over your savings to a third party, but with cash deposits in the UAE, the government has promised to guarantee cash deposits of residents. I'm not sure how easy it is to follow up on government-backed guarantees in any country in the world, however there is little likelihood that UAE banks will fail to meet their obligation," he added. But just before you take comfort in the idea that nothing can fail, Gregory cited one bank's problem.
Just this week, the Icelandic Bank Haupthing Singer and Friedlander was facing liquidation in the Isle of Man and people from all over the world were anxiously waiting for compensation from the Manx government.
He noted, though, that with National Bonds, your capital and profit rate are guaranteed by the issuer. "I believe that with UAE government bonds, you should not be concerned.
Corporate bonds carry more risk however," he added.
