Saxo Bank has introduced a new interest rate model that allows customers to earn interest income on their uninvested cash with no lock-in period or upper limit on the amount paid.
This comes as banks in the UAE continue to offer customers low savings yields despite consecutive base rate increases by the UAE Central Bank since last year.
With a competitive interest rate up to 4.06 per cent, clients of the Danish investment bank will now see their deposit interest rate increase to reflect when the Central Bank raises its interest rate.
The funds will remain available to withdraw or invest, while earning interest on a daily basis, Saxo Bank said.
“Our clients will get the market interest rate on their deposits with Saxo’s new model after the Central Bank of the UAE raises its interest rates,” Damian Hitchen, chief executive of Saxo Bank in the Middle East and North Africa, said.
“Saxo is here to get curious people invested in the world, and we hope with this, we make it easier for clients to stay invested regardless of the daily market movements, and more transparent when and why their rate changes.”
The UAE Central Bank increased its base rate for the overnight deposit facility by a quarter of a percentage point to 4.9 per cent, from 4.4 per cent, in March after the US Federal Reserve increased its policy rate by 25 basis points as it continues to fight inflation.
Most central banks in the GCC follow the Fed's policy rate moves due to their currencies being pegged to the US dollar. Kuwait is an exception in the six-member economic bloc as its dinar is linked to a basket of currencies.
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 local banks in the UAE have minimum salary and minimum balance requirements for their savings accounts.
For example, ADIB’s Ghina savings account offers an interest rate of up to 0.37 per cent but stipulates a minimum salary of Dh20,000 and minimum balance of Dh3,000.
An Emirates NBD savings account offers an annual return of 0.20 per cent while an HSBC savings account has an interest rate of 0.05 per cent.
UAE low-cost robo-advisory platform Sarwa unveiled a cash account with a 3 per cent annual interest rate in February.
Similarly, digital wealth manager StashAway raised the rate of return on its cash management portfolio to 4 per cent in February.
Saxo customers can use an interest calculator to estimate the total interest received on their uninvested cash depending on the deposit amount and currency, the investment bank said.
With this new model, the interest rate on clients’ deposits is updated on a daily basis based on market conditions, which means adjustments to Central Bank policy are reflected accordingly, it added.
“The deposit interest rate for retail investors has historically lagged behind market rates, but that is now a thing of the past,” Saxo Bank said.
“With the new interest model, Saxo’s clients get a more dynamic model that follows the market developments every single day.”
The deposit interest rate for retail investors has historically lagged behind market rates, but that is now a thing of the past
Saxo Bank
Customers do not have to tie up their funds to benefit from the new interest model offered by Saxo Bank. The interest received follows the market rate without binding client funds for a certain period.
The interest rate model applies to all deposits in USD, EUR, or GBP, it said.
However, Saxo Bank said that if the total balance does not exceed $10,000, no interest will be paid.
“For balance amounts above $100,000, you will receive the highest interest rate on the additional balance, with no upper limit or lock-in period on the deposit,” the bank said.
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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