Fixed and Term Deposits

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Fix your financial goals It is all about thinking clearly and starting inchmeal with a savings plan

BY Suneeti Ahuja-Kohli

T

he beauty of savings or the lack of it is amply evident when events requiring huge financial commitments show up unannounced, and as in most cases it is called retirement or child’s education funding. While retirement is a definitive punctuation to the usual mode of living, it takes away the convenience of routine monthly payouts in sunset years when we require it the most. Lack of funds in the old age can leave you depending on others for your basic daily needs if not planned properly.

Just like we plan our life goals to succeed, setting financial goals help a long way in taming uncertainties. Here are some of the ways you can save and protect yourself from unpleasant experiences: Save regularly: Small steps lead to big accomplishments and one of the best ways to start saving is to be regular and consistent. If you lack fiscal discipline, forced optimisation of resources holds the key for you and one of the

Prospects of revival

best ways to do that is open a recurring deposit (RD) account in your bank.

From next month on, before you cater to your financial commitments and pocket money, pay yourself first. And by this we mean saving, and not a shopping allowance. Banks in the UAE offer RD accounts for as low as Dh500 a month. By doing so, you will be forced to pay yourself Dh500 every month, and within a year you will be richer by around Dh6,100 — an amount that would have otherwise gotten lost to some sort of retail therapy. The calculation has been done considered the bank pays three per cent interest rate annually.

Term and fixed deposits: Once you have gotten a taste of forced savings, you will be encouraged to see it grow further. One of the safest ways to park money and see it grow a little is through term and fixed deposits. Take for instance Union National Bank (UNB). It offers accounts with Accelerating Rate Deposit, which incentivises the savers through higher interest rates of up to 5 per cent. The account allows easy liquidity and credits interest on monthly basis.

Commercial Bank International (CBI) too has attractive interest

The art of living comfortably and meeting all your expenses and obligations is to plan right

Economic recovery spurring solid growth for Gulf banks

rates on its fixed deposits. Fixed deposits with the bank earn 2.75 per cent per annum for two years or 3.25 per cent per annum for three years.

Systematic Investment Plans (SIP): Besides the plain vanilla products like the term and fixed deposits, banks also offer SIPs that give exposure to equities. Unlike the safety that banks offer on its deposit schemes, money invested in equities and other debt instruments is subject to market risk.

But it always pays to invest in some

learning and take help from a financial advisor for sound investment plans.

The art of living comfortably and meeting all your expenses and obligations is to plan right. Identify your goals, such as your child’s education, retirement, down payment for a car or a house, and start saving for it today. While banks and financial institutions do offer the comfort of personal and credit loans, saving diligently can help you build your dreams without paying extra interest.

—suneeti@khaleejtimes.com

Gulf banks have shown healthy earnings growth over the last year and a half despite historically low interest rates, said Standard & Poor’s Ratings Services in a recent report titled “Economic Recovery Spurs Solid Growth For Gulf Banks”.

Banks in the GCC countries have experienced lower net interest margins, but improving asset quality and falling credit losses have generally offset this.

It believes that declining credit losses will continue to support GCC banks’ earnings throughout 2014, although the effect is expected to be less visible in 2015.

“Prospects for economic growth in the Gulf region remain healthy for the next few years,” said Standard & Poor’s analyst Timucin Engin. “We expect most Gulf banks to continue to benefit from robust corporate activity and consumer consumption over the next 18 to 24 months. The many infrastructure projects planned in the Gulf should translate into sustained streams of corporate lending.”

Over the past three years, strong liquidity flows into the Gulf’s deposit markets have supported the region’s banks,

which traditionally rely on local deposits for the bulk of their funding, and is expected to continue. Regional sovereigns and their affiliated entities are key depositors in the local markets, and their fiscal positions should continue to be bolstered by strong oil prices.

Banks in the region are believed to be well-positioned to comply with the incoming Basel III rules. Most banks already have significant levels of high-quality capital, as their reported Tier I ratios indicate. In addition, given their strong earnings generation, Gulf banks can boost their capital if needed by minimising dividend payouts.

Standard & Poor’s rating actions in 2014 have largely reflected the generally positive backdrop in the Gulf region, and its outlook largely reflects the ongoing recovery in the GCC banking system. Of its 27 public ratings, seven have positive outlooks, and only three have negative outlooks.

Under Standard & Poor’s policies, only a Rating Committee can determine a Credit Rating Action (including a Credit Rating change, affirmation or withdrawal, Rating Outlook change, or CreditWatch action). This commentary and its subject matter have not been the subject of Rating Committee action and should not be interpreted as a change to, or affirmation of, a Credit Rating or Rating Outlook.

Term and Fixed Deposits

khaleej times / ADVERTISING SUPPLEMENT

Keeping money aside is all about balance

Saving for a safer and better tomorrow In a country where two-third of residents save up to 50 per cent of their monthly salaries, there is a huge potential for banks to tap into this pool Majority of UAE residents surveyed by www.compareit4me. com, a UAE-based finance comparison website, said they put their money in local banks.

Fifty-two per cent of respondents of the annual survey, which seeks to measure consumer finance habits, claimed they are more confident with banking systems in the UAE. Jon Richards, CEO of www. compareit4me.com, said the results indicate that UAE financial institutions are trustworthy enough but they have to do more to convince the rest of the UNB-ARD-KT(260x293_2).pdf

residents to keep their savings onshore.

“When you look at the results, a significant number or 65.5 per cent of the survey respondents claimed to be saving between 10 per cent and over 50 per cent of their salary every month. With millions of dirhams leaving the country every year, there appears to be huge potential for UAE banks to attract regular savers,” Richards added.

The banks need to work with the UAE Central Bank to look at initiatives that will incentivise expat workers to keep money earned here. At present, nearly half of the expats feel more comfortable saving with banks in their home country as they understand the system and feel comfortable with banking regulations. Accounts in the Isle of Man are protected by the Compensation of Depositor Regulations.

Comments Damian Hitchen, Sales Director – Middle East and Asia of Swissquote Bank: “Expatriates in MENA are increasingly looking for safe, easy-to-use and flexible offshore banking and investment providers. Based on the 1

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growth of our expat account alone in 2014 we see a big demand for assets held outside the region, giving them a centralised account for their global savings that are accessible round the clock”.

Despite the large number of residents sending money abroad, renewed economic confidence in recent years has seen UAE banks flush with liquidity. According to the UAE Central Bank, total bank deposits of UAE banks climbed by 1.4per cent year-on-year in June to Dh1.4 trillion ($381 billion).

“Instituting proactive financial service reforms will be a critical step towards encouraging expats to keep their money in the UAE banks. Providing transparent mechanisms that protect depositors will undoubtedly increase deposits with local banks giving them greater access to retail funds. This will lead to cheaper forms of credit while strengthening the resiliency of UAE’s financial sector during times of crisis.” said Richards.

To find out more about the 2014 Financial Survey, visit www.compareit4me.com.

A recent ADIB smartmoney survey conducted in the UAE found that only half of adults in employment keep a close watch on how much they spend

BY Petr Klimes

I’d like to save, but I find it difficult to control my expenses. What should I do? Saving can be a struggle for many reasons, but perhaps one of the biggest is that it has an image problem. A lot of us associate savings with austerity, sacrifice, constantly denying ourselves things or experiences we really want to put something aside for a tomorrow that seems very far away — so it’s no surprise we’d sometimes rather avoid the whole thing. Thankfully, saving doesn’t have to be like this. It is completely possible to enjoy life while building for a secure future — it’s all about balance. And the earlier you get started, the easier it is.

Before you embark on a savings plan, there are a couple of overall principles to bear in mind. First, you should save before you spend your earnings, not the other way around — in other words, don’t just set aside whatever you happen to be left with at the end of the month; put your savings aside first. Establishing clear savings targets, and giving them top priority, will help you make tangible progress towards your financial goals. We recommend aiming to save at least 12 per cent of your monthly income, and up to 20 per cent if you don’t have any financing or debt to pay off.

So where do the rewards come

It’s important to ensure your savings goals are realistic; setting the bar too high only makes it more likely that you’ll abandon the whole enterprise.

in? Sit down and have a good think about your main financial goals for the short term (up to one year), medium term (the next few years) and long term (decades from now). Work out roughly how much each is likely to cost you and how much you’ll need to save each month to hit those targets, assuming no additional profit returns on your savings. Thus if you wanted to take a Dh20,000 holiday in six months’ time, you’d need to put aside Dh3,350 each month. By ensuring you have at least one short-term savings goal you want to work towards, you won’t have to wait too long to see the benefits saving can bring — which should help encourage you for the long haul.

It’s important to ensure your savings goals are realistic; setting the bar too high only makes it more likely that you’ll abandon the whole enterprise. It’s also helpful to open a separate account to keep your savings one step removed from your everyday money and spending, and to set up an automatic payment so whatever you need to set aside is going straight into it on payday. As they say — out of sight, out of mind.

To meet long-term financial goals such as paying for a child’s education or retirement, simply putting money aside may not be enough; you’ll need to put your money to work as well, by investing it. A good example might be an investment product, which offers access to a selection or range of popular stocks, which are managed to optimise return and minimise risk. Banks such as ADIB offer these for, to give examples, telecom- and auto related companies that can offer higher returns than standard bank deposits. A qualified investment adviser will be able to help you build a savings and investment plan that takes into account your desired goals and the risk profile appropriate to your circumstances.

(The writer is Head of Marketing at Abu Dhabi Islamic Bank.)