Deposit rates in the UAE continue to drop

Dubai: Savers will continue to see their nest eggs whittled away by inflation, as interest rates in the country continue their downward trend.

Interest rates in the UAE have been on a decline since liquidity in the banking system has improved, owing to the influx of wealth from around the region, as well as the rebounding real estate sector, increasing business confidence and growing buzz around Expo 2020.

Due to its stability, the UAE has been the beneficiary of private capital flow from other countries in the Middle East and North Africa, following the political unrest in the Arab world. There has also been an influx of wealth from emerging markets like India, Russia and China.

According to Preeti Bhambri, managing director of personal finance site MoneyCamel.com, the 12-month average interest rate for deposits dropped from 1.6 per cent in 2012 to a measly 0.85 per cent to date.

“Over the last one year, the liquidity situation in the country has improved even further. As a result, deposit rates have fallen further from last year’s level,” Bhambri told Gulf News.

“UAE banks are still flush with liquidity, owing to capital flowing in from the Middle East region. With limited avenues to invest, banks have no incentive to attract more deposits and pay a higher rate to investors. This is also evident from the falling rates on personal loans and mortgages,” she added.

Considerable drop

For short-term fixed deposits, rates have fallen considerably, with some banks offering as low as 0.5 per cent per annum on a 6-month basis. Long-term rates have fallen “marginally” and are mostly hovering below 3 per cent.

At one bank, a saver can earn an interest of 1.75 per cent per annum from a savings worth Dh100,000 or more, provided the money is kept for three years.

“For investors with Dh10,000 or more to invest, however, Commercial Bank International has launched a promotional rate of 2.75 per cent per annum for two years and 3.25 per cent per annum for three years,” said Bhambri.

Rates for online accounts, which normally offer better rates than standard deposits, are not as promising, with rates ranging between 1 per cent and 2 per cent, falling from 3 to 4 per cent in the previous years.