Comparing returns: Retail bonds vs bank deposits

If, like many investors who are risk-averse, you have low income, your saving options can include parking your funds in the bank because they offer a promise on the principal amount as well as some sure returns. While they are definitely one of the safest options, these instruments may offer low returns on your money.

So, you may want to think lottery-style savings schemes, which combine the safety of a bank account with an added incentive: a chance to win a large prize. Such schemes have cropped up in the UAE, but critics pounce on the lack of solid guarantees for high returns.

The question is: would you rather let your money sit idly by while you wait to win Dh1 million or put it in a savings scheme that guarantees you a fixed return every year?

Banking and finance experts cannot seem to agree on the answer. In the last three years, the average interest rate on fixed deposit at HSBC was around 4 %, with the highest rate reaching 5.75 % in 2008. This year, the highest rate so far has been 3.5 %.

For James Pearson, the bank's head of assets and liabilities, savers are better off placing their funds in high-yielding fixed deposits or flexible savings accounts such as their eSaver, which currently offers three per cent return per year.

"Broadly, lottery-based savings products offer minimal or no return, as a trade-off for a chance to win a bumper prize," says Pearson.