Why people are flocking to high-interest savings accounts

With inflation likely to remain elevated, leaving cash idle in a traditional bank account means that it will depreciate in value

While the cost of borrowing has risen in line with interest rate increases, banks have been slower to pass on the benefits to savers. Ryan Carter / The National

Steven Leslie Glitz, a principal consultant at recruitment company Redpath Partners, had a significant amount of capital parked in a local bank in the UAE. It was not earning any interest and he was looking at different options.

The British national is relocating to Canada but is not yet a resident, so he’s unable to open a Canadian bank account. With no plans to return to the UK, it didn’t make sense to transfer the money from the UAE because of high transaction 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 and 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 Sarwa’s banking partner, Saxo Bank in Denmark.

“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.”

Consumers 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 minimum salary and minimum balance rule 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,” Mark Chahwan, co-founder and chief executive of Sarwa, says.

“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 adds.

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 a product offered through Sarwa Digital Wealth (Capital) Limited, which is regulated by the Financial Services Regulatory Authority in the Abu Dhabi Global Market. This offering is not regulated by the Dubai Financial Services Authority, Sarwa says.

Sarwa is not a bank, but it unlocks high-yield accounts through its banking partners, it adds.

Sarwa Save has driven monthly deposits to grow by 2.5 times in three months, the company said in a recent statement.

Shivam Devani, a senior analyst at Johnson & Johnson, prefers the Sarwa Save account to other savings accounts with traditional banks 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.

Watch: US Federal Reserve chief warns of 'pain' in reducing inflation

Similarly, UAE-based 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,” Joseph El Am, general manager StashAway Mena, says.

“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 around 0.5 per cent to 0.8 per cent per annum, Mr El Am says.

With inflation likely to remain elevated, leaving idle cash in a bank’s 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 adds.

Deposits in StashAway Simple have risen by 300 per cent since the company increased its rate.

Jonathan Reilly, senior territory manager at tech company Dynatrace, aims to accumulate cash for a property investment in the next 12 months.

However, he was disappointed at 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,” the British national 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, poses very small risk and the increased savings rate is passed directly to the customer when banking base 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 lock-in period or upper limit on the amount paid.

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 UAE Central Bank raises interest rates.

The average yield on saving accounts in the UAE banks is around 0.8 per cent as it stands today

Mark Chahwan,
Sarwa's co-founder and chief executive

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 coverage and benefiting from differential rates, the lender adds.

“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 long-term future and support to build wealth.”

Abu Dhabi Islamic Bank, Mashreq and HSBC declined to comment for this story.

ENBD 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, Emirates NBD rewarded three customers with limited edition Mercedes-AMG G63 UAE Golden Jubilee Edition cars and 54 customers with Breitling Aerospace watches, aimed at encouraging saving habits among customers.

The promotion offered dedicated prizes to customers when they increased their account balances or opened a new bank account.

Most cash accounts in the UAE offer low to no interest, while most local banks have minimum salary and minimum balance requirements for their savings accounts. Jeffrey E Biteng / The National