UAE interest rate hike 2026: Deposit returns rise to 5.5% but personal loan offers stay competitive from 2.5%

Abu Dhabi: Banks operating in the country maintained their financing offers for individuals and companies, following the Central Bank’s decision to raise the base rate by 25 basis points, the first increase in interest rates in more than three years, following a similar action by the US Federal Reserve due to the policy of pegging the dirham to the dollar. The increase appeared more quickly in deposit returns, as the decision to raise them by 25 basis points was implemented starting last Saturday, bringing the rates to between 4.5% and 5.5% as a fixed return on deposits according to their duration. Meanwhile, the increase did not extend to financing rates at the same pace, as banks continued to offer competitive financing deals, with the aim of attracting new customers and maintaining their market share. According to a survey of a number of banks in which the largest percentage of customers are concentrated, there is a trend to compete in the packages of offers provided to customers. These include a reduction in the interest rate on personal loans until further notice, starting from a fixed 2.5%, as well as grace periods before regular payment of the first instalment, ranging between three and seven months. A large bank in Abu Dhabi offers its citizen customers a grace period of up to 12 months. Ahmed Youssef said that raising the basic interest rate does not necessarily lead to an immediate and uniform increase in all loan prices, as bank pricing depends on a set of factors. Picture credit: Supplied In response, banking expert Ahmed Youssef said that raising the basic interest rate does not necessarily lead to an immediate and uniform increase in all loan prices, as bank pricing depends on a set of factors, including the cost of funds, reference interest rates, type of financing, as well as the loan term, level of risk, creditworthiness of the customer, in addition to each bank’s policy and the size of competition in the market. Youssef added: “In contrast, deposits are gaining increasing importance in a high interest rate environment, which is pushing banks to improve the returns offered on some savings and time deposit products, with the aim of attracting new liquidity and retaining existing deposits.” He explained that customers who prefer to save benefit from this situation by obtaining higher returns on their money, especially when choosing fixed-term deposits with specific periods, with the return varying from bank to bank, according to the value of the deposit, its duration, and the terms of the product. Youssef explained that for mortgage borrowers, the impact of raising interest rates depends mainly on the nature of the financing. Fixed-interest financing is usually not affected during the agreed-upon rate-fixing period, while the cost of variable-interest financing can change when the repricing date arrives, according to the reference index specified in the financing contract. For his part, banker Tamer Abu Bakr said that financing offers are continuing, as competition between banks remains an important factor in determining the final prices obtained by customers, especially in the personal, real estate, and car financing sectors. Tamer Abu Bakr said banking competition is not limited to interest rates, but also includes fees, repayment periods, financing ratios, salary transfer conditions and other aspects. Picture credit: Supplied He explained that banking competition is not limited to interest rates, but also includes fees, repayment periods, financing ratios, salary transfer conditions, speed of approval, and product-related benefits. Therefore, the customer may find a difference in the cost of financing between one bank and another, even under a single basic interest rate level. He added: “The impact of the interest rate hike is expected to become clearer in the coming period, especially with the repricing of existing variable-interest loans and banks reviewing the cost of funds and returns they offer on deposits, particularly if interest rates are raised again before the end of this year.” Abu Bakr pointed out that higher interest rates are more positive for savers, as they can obtain better returns on the liquidity held at banks, but he said that “banks usually try to strike a balance between maintaining competitive financing offers, attracting deposits, and managing the cost of funds.”