Everyone knows that UAE is one of the busiest and most prosperous nations in the entire world. It is a workplace of individuals hailing from everywhere around the globe. A bustling nation that is filled with immigrants and an affluent native population is a prime center for finance and business.
As facts know it, the average salary in Dubai is much higher than the average salary in other countries, for the same job. This, almost naturally and inferentially, would imply towards most of the workers settled and earning in UAE, to be able to obtain a better amount of savings as in comparison within their home country/city.
Apart from offering a higher purchasing power parity to the earning members, an extra savings amount naturally implies a higher depositing capacity. What most people would do instead of putting their money into purchasing unnecessary goods is put it into reinvestment schemes.
Everyone knows that a ‘fixed deposit’, or a ‘term deposit’ happens to be a foolproof, always prescribed, and preferred method to be used for investment purposes. As is the norm in UAE, even though monthly or annual returns from all fixed deposits are given freedom from taxation. Let us attempt to discuss and understand the distinctive methods by which one will be able to earn extra income into their bank account out of their already invested fixed deposit amount. As per the table given above, we can compare and contrast the various profit rates offered by different respective banking institutions to get a good understanding of what would give the greatest returns in cases of investment, and of course, re-investment as well.
- Fixed Deposit Policies
As per our knowledge, innumerable fixed deposits are systemized as such, in the UAE, that they are mainly short-termed depositing policies, scheduled to see their maturity within 12 months, or even a lesser timeframe. Here, what we do know is that these tenures might vary in time domains, such as from a weekly basis to a monthly basis to a quarterly, half-yearly, or annual tenure.
Now what most of us may fail to have a deeper knowledge about is the fact that every distinct fixed deposit policy, on any bank account, be it a current or savings account, or even a business account; brings with it an interest rate that has been decided beforehand. Islamic banks/ banking institutions/ NBFC’s would be calling it the profit rate.
Let us stick to the latter term here, that is, the ‘profit rate‘, to avoid confusion and keep our ideas clear and distinct. So, profit rates are offered which often change vis a vis each bank concerned and with distinctive tenors. But, it is integral to know that each fixed deposit system, be it quarterly or monthly fixed deposit, comes with a similar and unique rate of interest, or, profit rate. For certainly every monetary organization will be offering their client a unique and distinct interest rate. Thereby, one can also infer that one ought to carefully do their research, scan, and then pick their bank or banking institution for their current account and savings bank account purposes, such that one can obtain the best amount of returns on their fixed deposit.
However, as a matter of fact, let us know that even though a few banking institutions may offer you a facility of withdrawal which is possible to be done prematurely, without charging you any penalty, others still have not introduced it as yet.
- Compound Interest Policy
On that onset of maturity of your fixed deposit, you do rejoice, don’t you? This is because now you are at ease with an option to withdraw your funds at your convenience. This is a good option, especially if you have some commitments. If you do not have any such commitments, such as purchasing that necklace or that new Paul Smith suit at Dubai Shopping Festival, then what one can do is attempt to earn more through re-investing their investment.
Let’s understand it better. To be able to obtain a larger amount as your returns, what you should do is consider again investing the already matured amount into another fixed deposit, as a type of re-investment. This is advisable for a reason. On the instance that the full amount taken during maturity gets invested again for an interest amount in return, will not the returns get even better, as a result of the policy behind compounding your finances.
Takeaway tip from this? Now, when your trusted banking institution allows you reinvestment of interest option, take it. This is simply because the monthly or quarterly compound interest will probably, in turn, make your term deposit worth a larger amount.
We must be willing to know how this happens, right? This is how it functions:-
Say you opt for a plan which offers you a rate of interest at 2% annually. This would imply that you would expect to get in return of 2.15% in one year itself, that is if the reinvestment option is gone. So why settle for 2% only when you can have 2.15%? Why settle for less when you can more, right?
Example:
Let us understand this better. Let us choose a round figure to make our permutations and calculations easy. Let us suppose that you invest around AED 1000 towards the commencement of the financial year will, and by the end the total sum will come up to AED 1020.15. But, you may have a chance at earning a bit more than the expected AED 1020, if you attempt to reinvest the obtained amount, wouldn’t you? This is for a reason that the interest attained, gets compounded each quarterly term. So, naturally, a rate of interest standing at 2% in a year, means that there is an interest of 0.5% in one quarter. Therefore, say, AED 1000 invested would help you attain the interest of AED 5 (0.5% of AED 1000) at the end of the first three months. Just doing nothing and earning an extra 5 AED is quite a good plan, isn’t it.
Henceforth, the originally invested amount of AED 1000 made by you would amount to AED 1005 towards the end of a short period of three months. When this method is repeated for the following three quarterly periods, one is left with AED 1020.15 when the year ends. This is therefore a return earned at the rate of 2.15%, which is if not very, but slightly higher than the rate of interest at two percentage. This is a good plan for firms and just about any investor that can do without the money earned from fixed deposit sources. That is, those who will not require a uniform source of earnings from the fixed deposit/(s) that they make. Thus, in this manner, they can see an increment in their due returns as they go for reinvestment of their funds.
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