Everything You Need to Know About Interest Rates in UAE

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With rapid digitisation and expansive ease in taking loans, an additional amount called 'Interest' is all you need to pay in exchange. Precisely, the Interest rate is an amount the borrower pays to the lender based on the agreed percentage of the loan amount. In addition, the interest is paid out monthly, half-yearly, or sometimes annually, depending upon both parties' financial preferences. 

Apart from the interest that you pay on the amount you borrow from the bank, Banks also pay out the interest rate to their account holders on balance maintained in their bank accounts. Apart from that, the savings accounts and certificates of deposits offer a higher percentage of interest rates than other financial products and services. 

Furthermore, the interest rate can be charged for the use of assets other than cash. These assets include vehicles, property, goods, and more. Besides, it primarily applies to lending and borrowing transactions. For example, individuals pay Interest on the funds they borrow to purchase property, fund their business, pay for a child's education, buy a vehicle, so on and so forth. On the other hand, businesses pay Interest on borrowing funds to raise their capital or expand their operations by purchasing business operations by purchasing machinery, land, buildings, and more. Over and above, the borrowers pay Interest based on their chosen cycle and repay the borrowed amount in easy monthly instalments.

In essence, the interest rate is the cost of debt for a borrower and the rate of return for a lender. Moreover, the money repaid by the borrowers is usually higher than the amount borrowed. Thus, Interest is the amount that gets added to the borrowed money in the form of the cost of debt. This difference helps lenders earn money on the amount lent they could invest somewhere else and gain from the same through other sources. 

Types of Interest Rates

Depending upon the types of borrowings, the lenders mainly charge two types of interest rates – Simple Interest Rate and Compound Interest Rate. To know more deeply about them, let's have a look at the following:

Simple Interest Rate

A simple interest rate is a quick and easy method of calculating Interest on borrowed funds. For example, Simple Interest is calculated by multiplying the principal amount to the daily interest rate and the number of days lapsing between EMI repayments. In Simple Interest, the principal amount remains the same where the interest amount of the previous year gets added to calculate the interest amount of the next year. 

Compound Interest Rate

Some banks and other financial institutions prefer applying compound interest on the loans they lend to their customers. With compound interest, the borrower pays even more in the form of Interest. With this method, the bank adds the interest amount to the principal amount and applies Interest to the new amount. This means the bank assumes that at the end of the year, the borrower owes the principal amount in addition to the interest rate for the entire year. And for the next year, the bank charges interest on the total amount. 

How Interest Rates Help Banking Sector Make Profits?

Banks in the UAE have various sources of earning funds from their customers. Most prominently, these sources of income include interest income, fee-based income, and capital markets income. 

Further, Interest rates are one of the primary revenue drivers for the banks in the UAE to make money. Wondering how? Let us check out how this works. So, firstly, the banks enable investors to deposit their funds with them in exchange for a reasonable amount of Interest and security of their funds. 

Then, they lend out these funds to people who need money and charge higher interest rates on the same. Thus, the borrowers repay these funds with higher interest rates to the bank. This difference of interest helps banks make good profits on the funds they got deposited from their customers in the first place. So, that's how Interest Rates help the Banking sector make huge profits. 

Interest Rates on Financial Products and Services

Banks and other financial institutions offer attractive interest rates to influence their customers. Adding to that, they provide different banking products to enable their customers to invest their funds based on their financial convenience. 

Expanding further, here is a list of major financial products that enable people to make a good amount of interest on their savings.

Interest Rates on Bank Accounts

Most banks in the UAE offer attractive interest rates on bank accounts for their customers. In addition, they simply enable account holders to earn interest on the balance maintained in their bank accounts. All they need to do is meet the minimum balance requirements of their chosen bank account. Thereafter, the Interest on these bank accounts gets calculated on a daily basis. 

Here are the interest rates of a few savings bank accounts in the UAE.

Savings Account Names Interest Rates
ADCB Active Saver Account 0.68 per cent
RAKBank Savings Account 0.25 per cent
CBI Saver Account 1.70 per cent
Emirates NBD Standard Savings Account 0.20 per cent
National Bank of Fujairah Max Saver Account 1 per cent
Standard Chartered XtraSaver Account 0.60 per cent
ADIB Smart Banking Account Calculated on each AED in the bank account
FAB iSave Account 1.68 per cent
Emirates Islamic e-Savings Account 1 per cent

Interest Rates on Fixed Deposits

Fixed deposit is one of the best investment options with a requirement of a one-time deposit. In addition, a Fixed Deposit is one of the safest investment options available in the market. Along with that, Banks in the UAE offer fixed deposit accounts for their customers. Moreover, the banking customers can earn an attractive amount of Interest by investing in fixed deposits. 

Furthermore, the interest rates on fixed deposits are calculated using both the methods – simple interest ad compound interest. So, the method of calculating interest varies from bank to bank depending on the fixed deposit amount and tenure the investor chooses. Interestingly, the best part about fixed deposits is that investors get higher interest rates the longer they choose the deposit term.

Here is a quick rundown of the interest rates of a few fixed deposit accounts in the UAE:

Bank Name Deposit Account Name Interest Rates
National Bank of Abu Dhabi 10 Year Smart Deposit 3.98 per cent
7 Year Smart Deposit 3.1 per cent
Year Smart Deposit 2.36 per cent
Union National Bank 1 Year Accelerating Rate Deposit 2.00 per cent
9 Months Accelerating Rate Deposit 1.7 per cent
6 Months Accelerating Rate Deposit 1.4 per cent
Emirates National Bank of Dubai 3 Year FlexiDeposit 2.5 per cent
2 Year FlexiDeposit 2.00 per cent
1 Year FlexiDeposit 2.00 per cent
First Gulf Bank 3 Year Advantage Plus 2.75 per cent
13 Month Advantage Plus 2.15 per cent
1 Year Advantage Plus 2.00 per cent
Noor Bank 1 Year Term Deposit 1.4 per cent
9 Months Term Deposit 1.25 per cent
6 Months Term Deposit 1.14 per cent

Interest Rates on Credit Cards

The interest rates on credit cards work differently than the general interest rates offered. Basically, they are a kind of income for the banks and financial institutions offering credit cards. Banks in the UAE provide various credit cards, offering exciting deals and discounts on retail, dining, entertainment, lifestyle, travel, and more.

Furthermore, People choose credit cards based on their daily financial needs. Along with all the other benefits and features, credit cards enable card members to fulfil their financial needs with the greatest ease. And in exchange for these funds, financial institutions charge interest on the repayment. 

With credit cards, the card members can make purchases, borrow funds, withdraw cash, and more to meet their financial needs without having to pay immediately. All they need to do is pay a specific amount of Interest while repaying the amount to the bank. 

Here are the interest rates of a few credit cards offered by different banks in the UAE:

Credit Cards Interest Rates
Standard Chartered Platinum Credit Card 3.45 per cent
Emirates NBD Skywards Infinite Credit Card 3.09 per cent to 3.25 per cent
Emirates NBD Titanium Credit Card 3.25 per cent
Najm Platinum Cashback Card 3.25 per cent to 3.99 per cent
Union National Bank Titanium Credit Card 3.19 per cent
FAB Platinum Credit Card 3.25 per cent
Dubai First Platinum Life Card 3.19 per cent

Interest Rates on Other Investment Options

There are various other financial investment products where interest rates play a critical role. These products include shares, bonds, and more. Generally, people invest in these financial products to earn Interest in their savings. And all these investment products offer flexible term options for the customers. 

However, when it comes to shares, the shareholders can get the interest rates in dividends. They simply provide funds to the investment company and get an attractive amount of Interest in return. However, shares can also fall below the price the shareholders paid for them in the first place. So they are best for people who are open to such ups and downs in the market and are ready to take the risk in the financial market.

Key Takeaways on Interest Rates

Here are a few key takeaways to help you better understand how interest rates work in the UAE.

  • Interest rate is the amount charged by a lender to a borrower in the exchange of use of assets.
  • The central bank sets up the interest rates based on the country's economic condition. The bank raises the interest rates when the economic condition is hot and reduces when it is slow and sluggish.
  • Interest rates are of two types – Simple and Compound Interest.
  • Banks and other credit unions apply simple Interest on mortgages and compound interest on different types of loans.
  • When interest rates rise, the investors may get encouraged to save and invest even more.
  • Banks check the amount of risk associated with a specific borrower and offer interest rates accordingly.
  • Borrowers with low-risk factors get lower interest rates, whereas those with a higher risk of non-repayment are charged higher interest rates.

The Bottom Line

Withal, the interest rates set up by various banks, whether on loan repayments or funds in the savings accounts, highly depend on the economy's overall health. Even if the interest rates are low on the loan repayments, the consumers can take advantage of the same if the country's economy is declining. 

Interestingly, Interest rates play both ways. Or example, low-interest rates can benefit the borrowers, and higher interest rates can benefit the investors. So, whatever role you are playing, you can always get in touch with us to explore your options. Whether you want to open a bank account with higher interest rates or get a loan at lower interest rates, we are always there to help. 

All you need to do is visit our website and go to the relevant section based on your financial requirements. Moreover, you can also call our help and support desk to seek assistance in case of any confusion. Essentially, our financial experts will not only analyse your financial preferences but also take you through the benefits and features of your chosen banking products and enable you to choose the best financial option in no time.

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