What are the ways to earn more from your fixed deposits in the UAE

By Atul Yadav
  | Published: 14 October 2021

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Fixed deposits (term deposits) are one of the safest investment options in the UAE. In a fixed deposit scheme, the bank locks your funds for a fixed tenure and you earn a pre-decided interest at the end of maturity. In UAE, you have numerous short and long-term deposit options ranging from 7 days to 10 years. Even though the fixed deposit is secure with almost zero downsides, the growth often is not enough to tackle inflation and you need to work out ways to earn more from your fixed deposits in the UAE. 

If you strategise your investment, you can earn better interest and make the most of your fixed deposit over the period. A fixed deposit offering a higher interest rate may be a suitable choice, but it’s not the only parameter to amplify your earnings. The article below focuses on the ways to maximise your profits in a fixed deposit scheme in the UAE. 

How does a fixed deposit work? 

Before following the ways to maximise your fixed deposit earrings, you need to understand how exactly it works? A fixed deposit is the simplest and oldest type of deposit scheme where you earn interest on your deposited funds at the end of maturity. The investment is a one-time deposit that the bank freezes for a pre-specified period depending on your financial goals.

The bank may apply simple interest or compound interest rate based on the tenure and type of fixed deposits. In all cases, the deposit account with compound interest is always better for higher returns in the long run. To find the best fixed-deposits accounts in UAE, you should consider the banks offering a higher interest rate and tenure flexibility. Other ways that you can work to increase your profits from a fixed deposit are as follows.

Ways to Maximise Your Earnings from a Fixed Deposit Scheme in the UAE  

While opening a fixed deposit account in UAE, you should do comprehensive research on various available options and find the best fixed deposit account in UAE, suiting your saving goals. Some of the tried and tested ways to increase your fixed deposit earning are as follows. 

  • Extensive Research and Comparison - The most basic and efficient way to maximise your profit is to compare various fixed deposit accounts available in the UAE. The interest rates or the profit rates vary depending on the financial institution. Needless to say that you should choose the one with the highest interest rates to offer. Next, you need to consider the various tenure of investment. If your bank offers a competitive interest rate in line with your investment tenure and financial needs, you should consider investing in one. 
    Most fixed deposits in the UAE are short-term deposits ranging from a week to a year. However, a longer investment tenure would amplify your earnings due to interest accrual. 
  • Choose Cumulative Fixed Deposit Account - A cumulative fixed deposit account offers a compound interest rate on your investment, yielding a better return at the end of the investment tenure. Banks may offer monthly, quarterly, half-yearly or annual interest on the investment, and the power of compounding would promise decent returns at maturity. However, before investing in a cumulative deposit account in the UAE, consider the aspects such as liquidity options, risk factors, etc. 
  • Use the Laddering Method - The laddering method ensures you liquidity in addition to increasing your return in the long run. A fixed deposit, where your funds lock for a specified period, may render you short of money in emergencies. A ladder method gives you the freedom to access your funds in multiple shorter tenures.
    To understand, let’s take an example: You have AED 50,000 to invest in a fixed deposit for a tenure of 5 years. You may choose a cumulative deposit with a 5-year tenure and earn interest at the end of maturity. However, in a case of emergency, you won’t be able to withdraw the funds since it’s locked for the tenure. If you invest AED 50,000 in five different FDs, each with a tenure of 1, 2, 3, 4 and 5 years, your funds are ready for withdrawal after each year. Additionally, you can reinvest your deposits if you don’t need them. Thus, laddering can earn you more from your fixed deposit in UAE without falling short of liquid funds. 
  • Avoid Premature Withdrawals - The thing that can gravely affect your fixed deposit is premature withdrawals. The banks may charge a penalty for withdrawing funds earlier than maturity and might revoke your earned interests. If you need money in emergencies, it’s better to take a loan against the fixed deposit or use the overdraft facility. Several banks in the UAE offer loans or overdraft features that you can use to keep your FDs intact and earn interest. To find the best fixed deposit in the UAE with such features, compare the services with ease of accessing funds in your deposit account. 
  • Invest Funds for Longer Tenures - Whatever fixed deposit you opt for, a long tenure promises a better return due to the law of compounding. Additionally, the banks get to use your funds for a long duration, earning more profits, and therefore offer a better return against your FDs. If you don’t have interim fund requirements and can invest freely, always opt for a long-term fixed deposit in UAE. 
  • Choose Fixed Deposits with Auto-Renewal Option - An auto-renewal feature help you reinvest your funds for another tenure if you choose not to withdraw it. It would help you grow your finances quickly because the power of compounding applies here too. In addition, you don’t need to reinvest your funds manually, saving your time and effort. Several banks in the UAE offer auto-renewal options, and you can opt for an account that suits your needs. 
  • Invest in Multiple Fixed Deposits - If you have a large sum to deposit, consider investing it into more than one fixed deposit. It would earn you a better return due to varying interest rates over the period and would also give you the option to withdraw funds during emergencies as the FDs have different tenures.  

Conclusion

Being a safe and secure investment option, people having a low-risk appetite choose to invest in fixed deposits in UAE. However, the return in a fixed deposit may not always compensate inflation rates. Therefore, individuals must follow the ways to maximise returns from their fixed deposits. The above article would help you in earning a better interest rate in your deposit account. To compare various fixed deposits in the UAE, you can visit the ‘Bank Account’ section on our website or get in touch with our support team.

Atul Yadav
Atul Yadav

Atul has had a flair for writing ever since he started writing essays in school, which inspired him to subsequently opt for a career in writing. He loves to write about places he's been to (the list is endless) and financial products that can help people make a real change in planning their finances better.