The unique positioning of the United Arab Emirates in the world of business and trade is undeniable. The UAE is a genuine business hub that go above and beyond its strategic location. It has to do with the lack of bureaucracy, preferable legal framework, access to cheap labour, and of course some of the best tax rates for businesses and individuals. You probably know all of that by now, if you have been residing in the UAE or anywhere else in the gulf area. What you probably also realized by now is that transferring money in and out of the country can be quite expensive.
Beyond the costs of actually wiring the money from point A to point B (whether it is from any country to United Arab Emirates, or the other way around), the exchange rates are just not competitive enough, especially when you are talking about significant sums of money.
If we look at Rakbank’s currency exchange rates, a simple search demonstrates that the spread major UAE banks take on foreign currency can be more than 5%. In other words, 5% of the money sent abroad using this unfavorable exchange rates is lost. Whether the exchange rate margin is 2% or 5%, when the transaction is for tens of thousands of Dirham – the cost of fees will amount to at least hundreds of AED.
The same type of fees in the form of unfavorable exchange rates also applies to international banks that transfer funds to a UAE bank account. Although it is uncommon to come across spreads which are as high as 5% over Europe, it is definitely reasonable to believe the average margin banks in the UK, Europe, Australia and the USA is at about 2.5-3%. Again, that’s 2.5% off the entire transaction value! That includes property investments which would be approximately AED 2,000,000 on average, so shelling out 25,000 in fees isn’t really something anyone would like to do?
There are many companies who have identified the needs of individuals and small business to transfer money in and out of the UAE. These companies, namely foreign exchange firms or money transfer companies, are essentially replacing banks when it comes to international money transfers. They are able to sell foreign currency for cheaper than banks because their operational costs are significantly lower, and deal with everything relating to the international transaction (whether on a permanent month-by-month basis or on a one-off basis).
This comparison chart shows some recommended companies based on location, including UAE, but the truth is that the difference between these foreign exchange providers (or better, put brokerages) is very insignificant. If you choose to find a banking alternative then it is recommended you would side with the bigger companies in this field, because after all – we’re talking about large sums of your cash to be handled by them, but besides that – there aren’t specific characteristics of a company you should be aiming to work with. They are mostly equally as good or as bad as their competitors.
Below is a short summary of the pros and cons of working with a money transfer company:
- Great rates
- Dedicated service and assistance
- Safe, if the company is properly regulated
- You have to verify you got the rate you bargained for
- Can take long to sign up
- Process can be cumbersome and slower than bank’s
If you are transferring large sums of money, though, and you are not getting great rates with your current bank, then it is highly recommended you would take the time to at the very least research this important aspect. There is absolutely no reason to spend much more than you have to on simple things like an overseas money transfer.