Dirhams, pounds or dollars? How to spend your money on holiday

Cash, credit or debit cards - which is best to take on your travels this summer? Our guide to holiday spending reveals the most cost-effective way to carry money while you are away.

Roxanne Brouillett, Canadian Estate Agent at the Advice Real Estate Brokers at European Business Centre in Dubai Investment. Pawan Singh / The National
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“Do you want to pay in dirhams or pounds?” It’s a standard question when paying at a shop or restaurant with your UAE credit card, but often the last thing many of us think about when heading off on holiday is organising our travel money.

Get it wrong, however, and you could lose hundreds of dirhams during your trip. So how can you get the most spending power while overseas?

In the past it was standard to take traveller’s cheques, but this is rare today, so most now rely on a combination of cash, debit and credit cards.

“The ideal way to spend while travelling would be a mix of carrying hard currency in nominal amounts – usually US dollars – and hedging your expenses against credit cards and prepaid or debit cards – the latter two being the most efficient for both value and peace of mind,” says Gaurav Sinha, the founder and chief executive of the travel design and communications agency Insignia Worldwide.

For security, it’s best not to carry too much cash, so it’s worth understanding the charges you’re incurring on your cards.

To draw out £50 in London on his Emirates NBD debit card in January cost Osman Kamal, a Jordanian sales director, who lives in Abu Dhabi, a total of Dh307 – including a Dh20 cash withdrawal fee. The pound/dirham exchange rate in January was about 5.5, so withdrawing Dh275 actually cost Mr Kamal an extra Dh32.

If Mr Kamal, 43, drew out £50 a day over a two-week period, the cash withdrawal fee alone would add up to Dh280 – a day’s cash in itself. “That’s close to 7 per cent in fees,” he says. “I guess I need to read the fine print more closely.”

On top of that cash withdrawal fee (which is usually a flat fee), travellers also need to consider the foreign currency transaction fee, otherwise known as a forex fee, which is a percentage of your transaction.

Confusingly, the transaction will only appear as one total amount on your statement – the bank will not break down the fees or show the exchange rate applied, but rather the cost of the fee to you in dirhams. Those are the hidden fees Mr Kamal did not spot.

How those fees break down is something to be aware of.

Digital payments companies such as Visa or MasterCard charge banks an International Service Assessment fee for the use of their global payment systems. Visa, for example, says it charges financial institions 0.15 to 1 per cent but says it is not responsible for the fees banks levy on top of that. MasterCard declined to comment.

“Since Visa does not assess any fees to cardholders or merchants, we have no involvement in financial institution pricing to cardholders or merchants,” says a Visa spokesperson.

So it is worth asking your bank about the fees and rates applicable to your cards before travelling to calculate the full cost of getting at your money.

ADCB, for example, charges a Dh20 fee for international cash withdrawals and transactions on debit cards, plus a 2 per cent processing fee for foreign currency transactions.

The bank says the 2 per cent fee excludes the processing charges demanded by Visa and MasterCard. “The withdrawal charges are applied to cover the cost of service charges levied by the bank outside of the UAE,” an ADCB spokesperson says, adding that the processing fee the bank levies on foreign currency transactions on credit cards ranges from 2.89 per cent to 2.99 per cent.

“It’s a fully variable fee and is also in line with standard market pricing of banks as well as money exchanges.”

Emirates NBD says it charges Dh20 to withdraw cash from an international ATM outside the GCC on a debit card (but no fee for transactions over $200 on some cards) plus a 1.84 per cent forex fee.

Meanwhile HSBC charges Dh20 to withdraw cash from a non HSBC ATM overseas, and applies a 2 per cent foreign currency processing fee on debit card purchases and withdrawals. For its credit cards, the forex processing fee is a higher rate of between 2.75 and 2.8 per cent.

According to HSBC, the foreign currency transaction is first converted to your account currency at the applicable exchange rate before the processing fee is charged as a percentage of the converted transaction amount.

“This is industry practice across all banks,” says an HSBC spokesperson.

Remember, if you take out cash on a credit card you are inviting further charges - which will only mount up even more if you do not pay off the full balance every month.

As well as the forex fee of 1.84 per cent, Emirates NBD says there is an additional cash advance fee of 3 per cent or Dh99 on its credit cards, whichever is more. HSBC also charges 3 per cent of the total amount or Dh100, whichever is higher. “This fee is in line with industry practice,” adds the HSBC spokesperson.

Charges can be very opaque. Last year, HSBC made an internal review of its forex fees and decided to refund many customers in the UAE who were overcharged.

“We found we could have better explained how we charged fees for foreign currency transactions, especially if more than one fee was applicable,” a spokeswoman said at the time.

Staying on top of all the charges can be confusing for some, so they prefer to use a combination of cards and cash.

“Generally I do the cash/card combo,” says Roxanne Brouillett, 35, a Canadian estate agent who is based in Dubai. “I always like to have some cash on me. For instance, when I go home to Canada, I may travel with only $40 or $60 in my pocket; I know I can withdraw and have no issues with credit cards there. But sometimes it’s difficult to get cash out of ATMs – I couldn’t in South Africa when I went five years ago.”

So what about that moment when you are asked in a shop if you want to pay in dirhams or the local currency of the place you are in?

If you pay in dirhams, you are doing so at the merchant’s own exchange rate, which is often not very competitive. However, the foreign currency processing fee – of 2 to 4 per cent – should be waived, as you are now paying in dirhams.

Mr Sinha agrees. “Credit card companies make the most profit on multi-currency transactions, so I believe it’s better for travellers to convert their expense into their home currency of dirhams at a point of purchase overseas. Merchant conversion rates are usually unfavourable, but it still means travellers are aware of their expenses and avoid surprises.”

To really tell if you are saving, you need to know your own bank’s charges and have a rough idea of the day’s exchange rate – a tall order for anyone.

Andrew Blackwood, 39, a British business development manager in Dubai, gets around the charges by using an exchange house to send money to his offshore accounts and then drawing money out when in Europe or the US in euros, pounds or dollars. As the dirham is pegged to the dollar, spending overseas in dollars is particularly advantageous to UAE residents.

“It’s much cheaper this way, as you get the best exchange rates and pay few fees,” says Mr Blackwood. “I don’t find the cash withdrawal fee any higher than with my normal bank account either. I’m generally going to be using either pounds, euros or dollars when I travel – dollars are used so widely globally.”

If you do stick to credit or debit cards, remember to tell your bank you will be travelling and spending in other countries, so they don’t flag it as fraud and block your card. It’s also wise to have an emergency bank number you can use overseas and ask them about their rates. Also, log your card numbers, keep your receipts to check off against your statement, track your transactions for any unusual activities and separate cards so they cannot all get stolen at once.

Cash is still king, and it is always worth having some in your wallet, even just to pay for the taxi from the airport. But don’t fall into the ultimate trap – you are a captive audience at the airport and exchange houses there charge you the highest rates.

Compromise comes in a prepaid card

One little-known option for UAE travellers heading overseas is a prepaid, reloadable card. This is growing in popularity and Visa says it is the next big thing. In fact, globally and in the GCC, three-quarters of all payment cards are now debit or prepaid rather than credit.

“The UAE’s prepaid sector is expected to top US$18 billion in the next five years, driven by growth in travel and tourism, increases in online spending and cashless payment initiatives,” says Marcello Baricordi, the general manager for the UAE and the global accounts lead for Visa Mena. “Cash presents the risk of theft and the worry of dealing with foreign exchange rates. Prepaid cards offer fraud protection and allow cardholders to top up accounts according to their budgets.”

If you use local prepaid dirham cards such as Loaded, Bling or Bayani, all from RAKBank, or Loadnshop and MyNetCard from Majid Al Futtaim, you will be charged overseas withdrawal fees of Dh10 to Dh20, as with other debit and credit cards.

While these are all cards aimed at local UAE spending, Bayani has two wallets to allow for dirhams and dollars. TravelEZ is a Visa prepaid card from Al Fardan Exchange that is reloadable in dollars as well as dirhams.

Probably the best of the bunch is Gocash from UAE Exchange, which allows you to load up to six currencies out of the 24 on offer, including US, Canadian, Australian, Singaporean and Hong Kong dollars, Indian rupees, South African rand, pounds sterling, euros, Thai baht and Malaysian ringgit.

Effectively an electronic traveller’s cheque, this can be loaded up with cash in advance to be spent while you are away. If you are spending in the local currency you will avoid forex fees, making the card a great travel option.

With all prepaid cards, there is a one-off issuance fee – anything from Dh35 to Dh80 – plus a minimum load amount and a ceiling as to how much you can load onto the card – generally Dh100 and US$5,000, respectively. There will also be inactivity fees and reload fees.


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