Remittances: Expats should beware hidden fees

If you’re a long-term expat and use your regular bank to transfer money home, beware: You could be shelling out big bucks on fees without even knowing it, writes Ben Flanagan

The UAE is the world’s sixth largest source of remittances, with residents here sending a cool $19.3 billion abroad in 2014, according to World Bank data.

But they are also paying out millions in fees and “hidden” exchange rate charges, experts say.

Some mall-based exchange houses in the UAE charge more than double that of their rivals, while high-street banks can be up to four percent more expensive than specialist online brokerages – and that all adds up.

According to the World Bank, the global average charge levied on remittances stands at 7.6% of the amount sent – but this can vary wildly according to which provider you use.

For example, most over-the-counter exchange houses in the UAE charge an outright fee of Dh20 on international transfers to India. But different exchange rate margins mean that the actual fee levied can be as low as AED 19.08 (with GCC Exchange), and as high as AED 43.31 (with Al Fardan Exchange), when transferring AED 1,835 into Rupees, according to the World Bank.

Preeti Bhambri, founder of personal finance website, emphasised that it pays to shop around – looking at both the outright fee and exchange rate – when making a currency transfer.

She also advised expats to make fewer, but larger remittances in order to save on the transaction cost – and to make sure they time it right.

“Don’t transfer on public holidays in UAE or in the receiving country as the exchange rate is usually not the best on such days,” she said. Others say it is generally better to transfer money during the Western working week – Monday to Friday – as this is when the foreign exchange rates are “live”.

Ambareen Musa, the founder and chief executive of the comparison website, also advised people to do their research before making transfers, as well as keeping a close eye on exchange rates.

“If you’re transferring money through your bank, keep in mind that it’s not only cheaper to transfer money to the same bank abroad, but faster too. Some banks offer a direct remittance option to remit to countries like India, Pakistan, Philippines, Sri Lanka and Egypt, at no additional fees, but be sure to check the exchange rate,” she said.

Loyalty programmes can pay off too, with some operators offering preferential rates, as well as non-monetary rewards, to regular customers, Ms Musa said.

Instead of the over-the-counter exchange houses, many expats use their own bank to make online international transfers – and this is where hidden fees can be particularly steep, experts say.

One alternative is using an online money transfer service – such as the UK-based HiFX, or the Global Currency Exchange Network (GCEN) – which typically see between one and four percent extra cash land in your destination account.

If you were to have used HSBC to transfer AED 25,000 into Pounds Sterling on August 19, for example, you would have received £5,081.35 in your UK bank account and had to pay a Dh150 charge in the UAE. But HiFX quoted £5,147.21 – which would also have attracted a Dh50 bank receiving fee – while GCEN estimated £5,217.32 with no fee.

Despite such savings, “lethargy” among consumers means many people just use their regular bank to transfer money without even checking rates, said Mark Bodega, group marketing director at HiFX.

“One to four percent might not sound very much but on a transfer of £100,000 this will be a saving of anywhere between £1,000 to £4,000,” he said.

Mr Bodega said that about five percent of HiFX’s clients are based in the Middle East – with remittances to the UK given a big boost following the devaluation of the Pound after the ‘Brexit’ vote.

Another option for UAE expats who regularly send money home is a “forward contract”, which allows them to lock in a currency at a particular rate, and then pay for it later, said Mr Bodega.

“Since Brexit we’ve seen a 23% increase in clients using forward contracts,” he said. “To do this, all clients are required to pay is a 10% deposit upfront and the 90% balance upon the maturity of the contract up to two years into the future.”

But while they may be cheaper to use, are online services like HiFX as secure as the big banks?

Mr Bodega said it was important for users to check an exchange firm is authorised before using it, as HiFX is in the UK and many other jurisdictions.

“Currency exchange is not covered by the UK’s Financial Services Compensation Scheme (FSCS), so if something goes wrong, you won’t be guaranteed full compensation,” he said.

“Therefore when choosing an international money transfer specialist, it is vital to look for one that is authorised by the UK-based FCA Authorised payment institutions have to keep your money separate from the company’s own money. This means that your money will be protected and should be paid back to you if the business goes under.”

Benchmark’s test of HiFX’s service – involving a transfer of AED 25,000 into Pounds Sterling – proved that the service worked well, offering a significant saving compared to a high-street bank. But while HiFX does not charge a flat fee for transfers over £3,000, there was an AED 50 charge payable to the receiving bank when sending funds to HiFX’s dirham-denominated account in the UK.

This made the process more complicated, requiring a phone call from a HiFX representative to discuss the AED 50 shortfall. Overall it took six days for the transfer to complete – compared with the hours or even minutes with a similar transfer conducted via HSBC.

Charlie Day, business development manager at GCEN in Dubai, said his company would typically offer a quicker service, of one to three working days, for those transferring dirhams to UK Pounds Sterling. GCEN also covers the bank receiving fee for transfers into the UK, where it is headquartered.

Like HiFX, GCEN also segregates clients’ money, one of several measures that adds to the security of the service. “We’ve never, ever lost anyone’s money,” said Mr Day.

GCEN typically offers clients a one to three percent saving compared to the bank rates, Mr Day said.

“Banks are very uncompetitive – so we can save our clients more money in that area. But if they are using a mall-based exchange or another broker, they tend to be slightly more competitive. So the percentage we can still save the client is not going to be as big compared to the bank. But it’s still a great saving,” said Mr Day.

So it’s probably time to shop around, compare fees and rates, and explore online currency transfer services – all essential factors for sending money home with a smile.

Rates comparison – Transferring AED to GBP

AED 25,000 will buy you:

Via GCEN: £5,217.32

Via HiFX: £5,147.21 (minus AED 50 receiving bank charge)

Via HSBC: £5,081.35 (minus AED 150 bank charge)

NOTE: Rates taken from providers’ websites at 3.40pm UK time on 19 August. HiFX and HSBC figures are based on live actual exchange rate. GCEN figure based on estimated rate.

What does it cost to transfer your dirhams to India?

Here’s what it costs to send money from the UAE to India, based on fees levied by local exchange houses. The fees are based on the transfer amount of AED 1,835, being converted into rupees.

Firm Receiving method  Fee (AED) Exchange rate margin (%)           Total cost (AED)
GCC Exchange Cash 15 0.22 19.08
Al Fardan Exchange Bank account 20 0.24 24.41
Lari Bank account 20 0.28 25.14
Wall St. Exchange Bank account 20 0.28 25.14
UAE Exchange Bank account 20 0.39 27.16
Al Ansari Bank account 20 0.44 28.08
Al Ansari Cash 20 0.72 33.21
MoneyGram Cash 20 0.77 34.13
UAE Exchange Cash 20 1.05 39.27
Wall St. Exchange Cash 20 1.05 39.27
Western Union Cash 20 1.05 39.27
Lari Cash 20 1.27 43.31
Al Fardan Exchange Bank account (same/partner Bank) 20 1.27 43.31
Al Fardan Exchange Cash 20 1.27 43.31

SOURCE: World Bank. Data collected on May 12, 2016