DEPOSIT RATES HEAT UP IN BOON FOR SAVERS
▶ With inflation expected to stay elevated, cash sitting in a bank account will end up losing value, writes Deepthi Nair
Steven Glitz, a principal consultant at recruitment company Redpath Partners, had a significant amount of capital in a local bank in the Emirates. It was not earning any interest and he was looking at different options.
The Briton is relocating to Canada but has yet to become a resident, so he is unable to open a Canadian bank account. With no plans to return to the UK, it did not make sense to transfer the money from the UAE because of high fees.
Instead, he decided to move his money to a high-yield cash account offered by UAE wealth management platform Sarwa.
Sarwa Save offers a 3 per cent annual interest rate, comes with a zero-transfer cost for local dirham accounts, requires no minimum balance and has no management fees. The US dollar account is held offshore with Danish lender Saxo Bank, Sarwa’s banking partner.
“Having been using Sarwa Invest for my investment portfolio for the past few years, Sarwa Save was a no-brainer, with my funds held in USD cash with little investment risk, while knowing Saxo Bank and Citibank provide the offshore benefits I was seeking at a much lower cost,” Mr Glitz says.
“The benefits include a guaranteed 3 per cent annual interest rate and knowing that my money is held by Saxo Bank, which is a reputable and secure bank that is regulated by the Danish Financial Supervisory Authority and a member of the Danish Guarantee Fund for Depositors and Investors.”
Bank clients are increasingly switching to cash accounts with competitive interest rates or high-yield savings accounts as a majority of banks in the Emirates continue to offer customers low savings yields despite nine consecutive base rate rises by the UAE Central Bank over the past year.
While the cost of borrowing has risen in line with the rate increases, banks have been slower to pass on the benefits to savers. Most cash accounts in the UAE offer either low interest or none at all, while most local banks have set a minimum salary and balance for their savings accounts.
“The average yield on savings accounts in the UAE banks is around 0.8 per cent, as it stands today. Sarwa Save offers almost four times this amount,” says Mark Chahwan, Sarwa’s co-founder and chief executive. “Ongoing macroeconomic uncertainty has also made people more cautious about their investments. As a result, they prefer to invest in more conservative and liquid instruments like high-yield cash accounts.”
Sarwa Save is ideal for people who prioritise short-term savings with interest. Today, many are seeking products that generate income while preserving capital, Mr Chahwan says.
For those looking for a Sharia-compliant equivalent, Sarwa offers Save Halal, a low-risk money market funds portfolio that consists of cash and cash-equivalent securities projecting a return of 3 per cent.
Sarwa Save is offered through Sarwa Digital Wealth (Capital) Limited, which is regulated by the Financial Services Regulatory Authority at the Abu Dhabi Global Market. This offering is not regulated by the Dubai Financial Services Authority.
Sarwa is not a bank but it unlocks high-yield accounts through its banking partners, it says. Sarwa Save has driven monthly deposits to grow by 2.5 times in three months, the company said recently. Shivam Devani, a senior analyst at Johnson & Johnson, prefers the Sarwa Save account to other traditional bank products because of the higher interest rate.
“Having been a working professional in Dubai for seven years, I have yet to see a beneficial interest this high, ultimately leading to my decision to save my money using this platform,” he says.
Similarly, UAE digital wealth manager StashAway raised the rate of return on its cash management portfolio to
4 per cent in February. Previously, StashAway offered 3.3 per cent on its StashAway Simple portfolio.
StashAway Simple is a high-yield cash management portfolio that has no minimum deposit, no lock-in periods and no withdrawal or management fees. It allocates 100 per cent of its assets to the Sharia-compliant Emirates NBD Islamic Money Market Fund, which is denominated in dirhams.
“Rapidly rising interest rates have battered global markets. But in the case of cash management portfolios like Simple, it’s been a good thing,” says Joseph El Am, general manager StashAway Mena.
“That’s because the very short duration of our underlying fund means maturing instruments can be regularly rolled over to take advantage of increasing yields. Simply put, rising rates allow us to increase our projected returns.”
The product is designed to keep excess cash or emergency funds in a money-generating product, instead of keeping it in savings accounts, where rates are about 0.5 per cent to 0.8 per cent per annum, Mr El Am says.
With inflation expected to remain elevated, leaving cash idle in a savings account means that it is depreciating in value each day. Cash management solutions or high-interest savings accounts offer an attractive option for customers to earn more on their savings in an uncertain economic environment, he says. Deposits in StashAway Simple have risen by 300 per cent since the company raised its rate.
Jonathan Reilly, a British senior territory manager at technology company Dynatrace, aims to accumulate cash for a property investment in the next 12 months. However, he was disappointed by the interest rate on savings accounts offered by the global bank where he holds most of his investments. “It was around 2 per cent if I was prepared to tie my money away for a period of time, which is six to 12 months,” he says.
“This was not the approach I wanted and having access to the cash was also important. I researched the market and StashAway Simple came up on top versus other providers.”
The product allows Mr Reilly to have instant access to his cash without any penalties and offers the flexibility to save regular amounts or add money on an ad hoc basis. The interest is calculated daily, posing a very small risk, while the higher savings rate is passed to the customer when base banking rates increase, Mr Reilly says.
Saxo Bank has also introduced a new interest rate model that allows customers to earn interest income on their uninvested cash with no lockin period or upper limit on the amount paid.
With a competitive interest rate of up to 4.06 per cent, Saxo Bank clients will now see the yields on their deposits rise to reflect when the UAE Central Bank raises its rates. The funds will remain available to withdraw or invest, while earning interest on a daily basis.
Meanwhile, Emirates NBD says it offers a variety of savings products focused on customer needs, providing easy and convenient ways to access money and earn interest while meeting daily requirements.
The bank offers a “safe and reliable way to grow savings” for customers through a host of options such as Smart Saver, Plus Saver and Tiered Saving products, while prioritising their family, children or currency transaction cover and benefitting from differential rates, the lender says.
“In line with competition and basis market liquidity positions, the bank offers competitive interest rates and these currently range from 0.2 per cent to 4 per cent per annum across various savings variants, including fixed term, and are reviewed periodically,” according to Emirates NBD.
“These savings products are bundled with a mix of features involving transaction banking solutions, international fund transfers at competitive rates and instant payment capabilities in accordance with customer liquidity preferences. These features help to achieve financial goals such as meeting short-term expenses or planning for [a] long-term future and support to build wealth.”
Abu Dhabi Islamic Bank and HSBC declined to comment for this story while Mashreq had yet to reply to questions at the time of going to print.
Emirates NBD also rewards its customers for growing their savings by offering them non-financial benefits in the form of luxury rewards and cash prizes. Last year, it rewarded three customers with limited edition Mercedes-AMG G63 UAE Golden Jubilee Edition cars while 54 customers received Breitling Aerospace watches in a campaign aimed at encouraging saving habits.
The promotion offered prizes to customers when they raised their account balances or opened a new bank account.
People are more cautious about their investments and prefer to invest in liquid instruments like high-yield cash accounts MARK CHAHWAN Sarwa’s co-founder and chief executive