Whilst bees are rare during winter time, high FX charges on your card spend abroad are not! Did you know that you could easily be paying up to 5% more for the privilege of using your card abroad?
Today, we'll explain what FX charges make up the total transaction costs, how to minimise or even avoid them and what to watch out for when spending abroad. All so you can be better prepared for your next trip!
FX transaction costs on UAE-issued cards
Whilst in other countries you can find cards that offer true 0% FX transaction costs, we are yet to find one in the UAE (please tell us if you did!). Here, the foreign transaction charges are usually made up of two components:
The card network provider charge for the FX conversion (i.e. the Mastercard or VISA fee) - this is usually 1-1.15% and very hard to escape from as only very few cards don't charge it. This is often called a "scheme charge".
Bank's additional charge for the foreign currency transaction - this can vary by bank and in some cases goes up to 4.5%. However, some banks have this down to 0% on some of their cards so this is what we focus on today.
Offsetting foreign transaction fees
There is no running away from at least some transaction fees. But the good news is that you can offset those fees with benefits offered through some of the cards.
In particular, some cashback cards offer up to 3% cashback on foreign spend, therefore in effect reducing the total transaction costs. We will include these when considering some of the best cards below.
What's the best way to pay abroad?
Pay using a local card - Especially if you're travelling back home and have a card with your old bank. Using it will avoid any currency exchange fees and usually there are no payment fees either. Bear in mind, you will need to transfer money (or use local funds) to pay off the credit card balance.
Use a good FX card - One that keeps the foreign transaction charges we described above to a minimum and/or provides you with benefits to offset them.
Pre-paid card from one of the UAE exchange houses - Some UAE exchange houses like Al Ansari convert your AEDs into the currency of your destination country and pre-load the funds onto a card you can take with you on holiday. You still have to pay their exchange rate but this will be better than a bad credit card that charges you 5%.
Which currency should I choose?
Local. Always local. We often get asked in shops if we would like to pay in AED or in the local currency. Your answer should always be to pay in the local currency.
If you choose AED, the conversion will be done by the shop's card terminal provider often at a very large markup that is also partially shared with the shop. This will always be more expensive.
Best credit cards for foreign spend
When choosing cards for the selection below we considered FX fees, whether they can be offset by unlimited cashback, annual fees and additional benefits you get with the card.
Credit card | FX fees | Annual fees | Comments |
|---|---|---|---|
2.99% bank charge, offset by 3% cashback on all foreign spend. | AED 300 | Annual fee is waived in year 1 and following years with min. spend. AED 8,000 minimum salary required. Includes airport lounge access. | |
0% bank charges, ca. 1.15% network charge | AED 787 for salary transfer customers, else AED 1,575 | AED 20,000 minimum salary required. This card also comes with a great selection of other benefits. | |
0% bank charges, ca. 1.15% network charge | AED 1,050 | AED 20,000 minimum salary required. Includes airport lounge access and Dnata points. | |
0% bank charges, ca. 1.15% network charge | AED 1,500 | AED 10,000 minimum salary required. This card also comes with a great selection of other benefits. |
* Note, there are other cards such as the SIB Cashback card where the cashback offsets the FX transaction fees. However, they have limitations such as max. cashback per month or minimum spend. As always, do your own research before committing.
If there are any other cards you use for foreign spend that we've not included, let us know!
Golden rules
Remember, as always with credit cards, you must pay them off in full every month. Otherwise, you will start to attract very high interest payments. Don't miss any payments and make sure you've earned the money before spending it!
Safe travels!
Disclaimer: Please bear in mind that this email does not constitute financial advice. Any choices you make you are solely responsible for. We always aim to provide highest quality, independent views but do your own research to ensure youāre comfortable with any changes you make to your personal finances.