Fixed deposits (also known as term deposits) are one of the most secure investment options in the UAE. In a fixed deposit scheme, the bank locks your funds for a set period of time and you earn a predetermined interest rate at the end of the term. There are numerous short and long-term deposit options available in the UAE, ranging from 7 days to 10 years. Even though fixed deposits are safe and have almost no drawbacks, the growth is often insufficient to keep up with inflation, so you should look for ways to earn more from your fixed deposits in the UAE.
You can earn higher interest and get the most out of your fixed deposit if you plan ahead of time. A fixed deposit with a higher interest rate may be a good option, but it isn't the only way to increase your earnings. The following article discusses how to maximize your profits in a fixed deposit scheme in the UAE.
Working of a Fixed Deposits
Before you can discover how to maximize your fixed deposit earrings, you must first understand how it works. A fixed deposit is the most basic and oldest type of deposit scheme, in which you earn interest on your deposited funds at the end of the maturity period. The investment is a one-time deposit that the bank freezes for a predetermined period based on your financial objectives.
Depending on the term and type of fixed deposit, the bank may apply a simple or compound interest rate. In all cases, a deposit account with compound interest is always preferable for higher long-term returns. To find the best fixed-deposit accounts in the UAE, look for banks that offer a higher interest rate and tenure flexibility. Other methods for increasing your profits from a fixed deposit are as follows.
Ways to Increase Your Earnings from a UAE Fixed Deposit Scheme
When opening a fixed deposit account in the UAE, you should conduct extensive research on the various available options to find the best fixed deposit account in the UAE that meets your saving goals.
The following are some tried-and-true methods for increasing your fixed deposit earnings
Extensive Research and Comparison
The simplest and most efficient way to maximize your profit is to compare the various fixed deposit accounts available in the UAE. Interest rates and profit margins differ depending on the financial institution. Needless to say, you should go with the one that has the highest interest rates to offer. Following that, you must consider the various investment tenures. You should consider investing in a bank if it offers a competitive interest rate that matches your investment tenure and financial needs. The majority of fixed deposits in the UAE are for periods ranging from a week to a year. A longer investment tenure, on the other hand, would increase your earnings due to interest accrual.
Select the Cumulative Fixed Deposit Account
A cumulative fixed deposit account pays a compound interest rate on your investment, resulting in a higher return at the end of the investment period. Banks may offer monthly, quarterly, semi-annual, or annual interest on investments, and the power of compounding ensures that the investment yields a reasonable return at maturity. However, before opening a cumulative deposit account in the UAE, think about things like liquidity options, risk factors, and so on.
Make use of the Laddering Method
The laddering method ensures liquidity while also increasing your long-term return. A fixed deposit, in which your funds are locked for a set period of time, may leave you short of funds in an emergency. A ladder method allows you to access your funds over multiple shorter tenures. Let's look at an example to help you understand: You have AED 50,000 to invest in a five-year fixed deposit. You can choose a 5-year cumulative deposit and earn interest at the end of the term.
However, because the funds are locked for the duration, you will not be able to withdraw them in an emergency. If you invest AED 50,000 in five different FDs, each with a tenure of one, two, three, four, or five years, your funds are available for withdrawal at the end of each year. You can also reinvest your deposits if you don't need them. Thus, laddering allows you to earn more from your fixed deposit in the UAE without running out of liquid funds.
Premature Withdrawals should be avoided
Premature withdrawals can have a negative impact on your fixed deposit. Banks may levy a penalty for withdrawing funds before maturity and may revoke your earned interest. If you need money quickly, it's best to take out a loan against your fixed deposit or use the overdraft facility. Several banks in the UAE provide loans or overdraft facilities that can be used to keep your FDs intact while earning interest. Compare the services with the ease of accessing funds in your deposit account to find the best fixed deposit in the UAE with such features.
Invest in Long-Term Funds
Whatever fixed deposit you choose, a longer term guarantees a higher return due to the law of compounding. Furthermore, the banks get to use your funds for a longer period of time, earning more profits and thus offering a better return on your FDs. If you don't need any interim funds and have the freedom to invest, a long-term fixed deposit in the UAE is always a good choice.
Select Fixed Deposits with Auto-Renewal.
If you do not want to withdraw your funds, an auto-renewal feature allows you to reinvest them for another term. It would assist you in rapidly growing your finances because the power of compounding applies here as well. Furthermore, you will save time and effort by not having to manually reinvest your funds. Several banks in the UAE provide auto-renewal options, and you can select an account that meets your requirements.
Invest in a Variety of Fixed Deposits
Consider investing a large sum in multiple fixed deposits if you have a large sum to deposit. It would earn you a higher return due to varying interest rates over time, and it would also allow you to withdraw funds in an emergency because FDs have different tenures.
People with a low-risk appetite prefer to invest in fixed deposits in the UAE because they are a safe and secure investment option. However, the return on a fixed deposit may not always be sufficient to compensate for inflation rates. As a result, individuals must employ strategies to maximize the returns on their fixed deposits. You can compare various fixed deposits in the UAE by visiting our website's Dhanguard 'Bank Account' section or contacting to our support team.
Earning from fixed deposits is made simple and hassle-free with Dhanguard in Dubai, UAE will assist you in earning a higher interest rate on your deposit account.