Illustration by The National 
Illustration by The National 

Spending abroad: should you pay in dirhams or the local currency?



There is always a brief moment of panic when you are standing at a shop counter abroad and the shop assistant asks if you want to pay in dirhams or the local currency. The answer - so memorise this - is always to opt for the local currency.

This is because when you choose to pay in dirhams (your ‘home’ currency’) at a cash machine, shop or restaurant abroad, you are also paying an invisible fee, which can add anything from 3 to more than 12 per cent to your bill.

This is known as dynamic currency conversion, meaning you have opted to allow the foreign merchant to set the exchange rate, rather than your own bank.

It may look simpler because you can see instantly, in dirhams, how much the transaction will cost. But you will not know until you receive your bank statement - when it is too late – the cost of converting your money.

The advantage of paying in dirhams, “ostensibly”, says Jon Richards, the chief financial officer of the UAE financial comparison site Yallacompare, is to avoid paying your bank’s foreign exchange fees, which come in at between 1 and 4 per cent on your purchase.

But you are replacing this with an “unknown” rate set by the merchant or receiving bank, he says: “You may end up paying more than if you’d just paid in dirhams and accepted the foreign exchange fees from your card issuer.”

At Emirates NBD, Dubai’s biggest lender by assets, customers pay 1.84 per cent as a foreign currency conversion fee to make a non-dirham (or local) payment on a dirham-billed card, says Suvo Sarkar, the senior executive vice president and head of retail banking and wealth management at the bank. That is on top on top of a standard processing fee (charged by MasterCard or Visa) of around 1.15 per cent.

To pay in dirhams for a non-dirham purchase, the foreign currency conversion fee is a slightly lower 1.15 per cent … but then, he says, you will also pay processing fees of up to seven per cent, as charged by the merchant.

“Foreign currency conversion fees will be charged for non-dirham billed transactions, whether you pay in dirhams or non-dirham currency,” Mr Sarkar points out. “It is therefore advisable to pay in the currency of the country you are transacting in to avoid high charges.”

Bluntly put, choosing your “familiar” UAE home currency is a “costly mistake”, says Ambareen Musa, founder and chief executive of financial comparison site Souqalmal.com. “Essentially, the convenience of being billed in dirhams is not worth bearing the unfavourable exchange rates involved in this on-the-spot currency conversion,” she adds.

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The European Consumer Organisation has been vocal in calling this practice “The Great Currency Conversion Scam”.

“All bodies dealing with consumer issues are unanimous - consumers should never accept dynamic currency conversion,” it writes in a November 2017 paper calling for an EU-level ban.

The watchdog cites a study by a Norwegian bank of 1,500 transactions by Norwegian customers in 2016; there were only four occasions when the cash withdrawal was cheaper when charged in Norwegian krone than where the withdrawal took place in the local currency. Converting was, on average, 7.6 per cent more expensive when dynamic currency conversion was applied, and the largest mark-up was a massive 12.4 per cent.

The European Commission is currently debating new rules on dynamic currency conversion fees. If successful, a customer will have to be shown the different rates being charged to decide whether to pay in their home or local currency. If made law, potentially in January, firms will have three years to comply, during which time a temporary cap may be applied on the use of dynamic currency conversions.

Complicated language is often used by banks at cashpoints too, such as the option to “continue with or without conversion”, or offering the option of ‘yes’ for dirhams and ‘no’ for euros, leading customers to think ‘no’ is the wrong answer.

There are “numerous examples” of consumers being directed towards a more costly currency conversion option, the European Commission says in its consultation document.

Meanwhile in the United Kingdom, the country's Cards Association advises that if dynamic currency conversion is used without a customer's permission, they should remind the retailer they did not want to pay in their home currency and ask for the receipt to be voided.

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Other ways to avoid foreign currency charges

Rasheda Khatun Khan, a UAE wealth and wellness planner, says if you travel somewhere regularly then it makes sense to transfer at a good exchange rate and keep a “cash pool” in that country too. “Dollars, sterling, dirhams - I have accounts in those currencies and use that first,” she says. “That way there are no ATM charges or currency conversion rates to pay. You’re not playing the currency market; you’re making it available for when you need it.”

Another option, says EmiratesNBD’s Suvo Sarkar, is to use a pre-paid currency card. The bank’s GlobalCash card, for example, allows customers to load up to 15 currencies popular amongst UAE residents: US, Australian and Canadian dollars; pounds sterling; euros; Indian, Pakistani and Sri Lankan rupees; Philippine pesos; Saudi riyals; Turkish lira; Swiss francs; Thai baht; South African rand and the UAE dirham. Most banks and currency exchanges offer similar pre-paid options for travellers.

Locking in an exchange rate “at the time of transfer instead of at the moment of spending", makes currency cards a “smart way” to manage foreign currency requirements, he says, as well as minimising the need to convert or carry cash.

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  5. Full hormone production regained within 4-6 months
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MATCH INFO

Rugby World Cup (all times UAE)

Final: England v South Africa, Saturday, 1pm

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Stars: Nadine Labaki, Ziad Bakri, Zain Al Rafeea, Riman Al Rafeea

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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Other workplace saving schemes
  • The UAE government announced a retirement savings plan for private and free zone sector employees in 2023.
  • Dubai’s savings retirement scheme for foreign employees working in the emirate’s government and public sector came into effect in 2022.
  • National Bonds unveiled a Golden Pension Scheme in 2022 to help private-sector foreign employees with their financial planning.
  • In April 2021, Hayah Insurance unveiled a workplace savings plan to help UAE employees save for their retirement.
  • Lunate, an Abu Dhabi-based investment manager, has launched a fund that will allow UAE private companies to offer employees investment returns on end-of-service benefits.
How to avoid crypto fraud
  • Use unique usernames and passwords while enabling multi-factor authentication.
  • Use an offline private key, a physical device that requires manual activation, whenever you access your wallet.
  • Avoid suspicious social media ads promoting fraudulent schemes.
  • Only invest in crypto projects that you fully understand.
  • Critically assess whether a project’s promises or returns seem too good to be true.
  • Only use reputable platforms that have a track record of strong regulatory compliance.
  • Store funds in hardware wallets as opposed to online exchanges.
If you go
Where to stay: Courtyard by Marriott Titusville Kennedy Space Centre has unparalleled views of the Indian River. Alligators can be spotted from hotel room balconies, as can several rocket launch sites. The hotel also boasts cool space-themed decor.

When to go: Florida is best experienced during the winter months, from November to May, before the humidity kicks in.

How to get there: Emirates currently flies from Dubai to Orlando five times a week.
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