Pay in Dirhams or Local Currency Abroad? The AED Button Costs About 7%, and the Bank's 1.99% Still Applies

The card machine at a hotel desk in another country asks one question before it prints the slip: charge this in the local currency, or in AED? The dirham option looks like the safe one. The amount is in a currency I can read, the rate is on the screen, and the bank cannot surprise me later. Every part of that is wrong, and the reason is in my own bank’s fee sheet.

Who converts the money when you pay in AED abroad

A foreign-currency purchase on a UAE card has to be converted to dirhams by somebody. There are two candidates, and the terminal is asking which one I want.

If I pay in the local currency, the card network converts it and my bank adds its fee. Emirates NBD’s key facts statement for credit cards, effective 1 March 2026, prices this path: a “1.99% currency conversion fee is charged to the Card Account for all transactions incurred outside UAE”, converted “at the prevailing exchange rate on the date the amount was posted to the Card Account rather than the date the Card was used”, and “in addition to the standard processing fee charged by MasterCard International or Visa International”, which the same document puts at “approximately 1.15%”. Gulf News reported in July 2025 that UAE banks had moved this combined charge to 3.14% from 22 September 2025, “a steep jump from the previous 2.09%”. On a Dh7,000 holiday spend the paper’s own arithmetic was Dh146.30 under the old rate and Dh219.80 under the new one.

If I pay in AED, the merchant’s payment provider converts it before the transaction ever reaches the network. The industry name is dynamic currency conversion, and Standard Chartered’s page on it is unusually plain: “Merchant Rate is the rate at which the merchant converts your transaction into your home currency. Rates can go as high as 5% or more. In this example 5% is used.” The National surveyed the practice in 2018 and cited a Norwegian bank’s study of 1,500 cash withdrawals by its customers in 2016: 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”.

Visa’s rules require the merchant to show the working. Its cardholder page says merchants and ATMs must display “Purchase/withdrawal amount in the local and cardholder’s currency”, the “Exchange rate used for the currency conversion” and “Additional fees or markup assessed”, and that they “must not choose on your behalf”. So the markup is not hidden. It is printed on the slip, in a font size Visa also has an opinion about, at the moment nobody reads it.

Why the bank fee is charged even when the transaction is already in dirhams

This is the part I had wrong for years. I assumed that a transaction settled in AED at the point of sale was, to my bank, a dirham transaction, so the foreign fee would not apply. Emirates NBD’s key facts statement has a row for exactly this case, titled “Fee relating to settling Foreign currency transaction in UAE dirhams”. It reads: a “1.99% currency conversion fee is charged for transactions where customers may sometimes be offered the option to settle a foreign currency transaction in UAE Dirhams at the point of sale overseas. Such option is a direct arrangement offered by the overseas merchants and not the bank (card issuer).”

The row ends with the bank’s own verdict on the choice: customers “are reminded to ask the merchants for the foreign currency exchange rates and the percentage of handling fees to be applied before the transactions are entered into since settling foreign currency transactions in UAE Dirhams may involve a cost higher than the foreign currency transaction fee.”

The dirham button does not replace the bank’s fee. It adds a second conversion, at a rate the merchant chose, underneath it.

Standard Chartered says the same thing from the other side: “Always pay in foreign currency to avoid additional fees set by the merchant, on top of the standard 2.99% foreign transaction charge.” Its foreign fee is a different number to Emirates NBD’s, which is the point of reading the fee sheet for the card actually in the wallet.

What USD 1,000 costs each way, worked in AED

Take a USD 1,000 hotel bill. At the dirham peg of 3.6725 that is AED 3,672.50, which is the number a currency-neutral world would charge.

Pay in dollars. The network’s approximate 1.15% takes the posted amount to AED 3,714.73. Emirates NBD’s 1.99% on top of that lands the statement line at AED 3,788.66. Cost of the conversion: AED 116.16, or 3.16% of the bill. (Gulf News’s 3.14% adds the two fees rather than compounding them; the difference is less than a dirham.)

Pay in dirhams at the 5% merchant rate Standard Chartered uses in its illustration. The merchant converts USD 1,000 to AED 3,856.12 and sends that dirham amount to the network. My bank then applies its 1.99% under the settling-in-dirhams row, and the statement shows AED 3,932.86. Cost: AED 260.36, or 7.09%. Whether the network’s own 1.15% also follows a transaction that arrived already in dirhams depends on the scheme’s rule for that case; I have left it out of this column, and the conclusion does not move if it goes back in.

At the 7.6% average the Norwegian study measured on ATM withdrawals, the same bill reaches AED 4,030.25, a cost of AED 357.75. At its worst-case 12.4%, AED 4,210.04, a cost of AED 537.54 on a bill that was worth AED 3,672.50.

So the honest comparison is not “3% versus 0%”. It is AED 116 against AED 260, and the gap is AED 144 on every thousand dollars, paid for the comfort of seeing a dirham figure on a screen.

The AED charges on your statement that still carry the foreign fee

The trap runs the other way too. A statement line in dirhams is not proof that a transaction was domestic. Standard Chartered’s disclaimer names names: “some eCommerce merchants (e.g. iTunes, SpiceJet, Indigo Airlines, Deliveroo) although offering services in UAE and charging in AED, process their card payments outside of the UAE. Such transactions are considered as international transactions and thus are subject to the DCC charges as mentioned above.” Emirates NBD’s fee wording matches: the 1.99% applies to “all transactions incurred outside UAE”, and the test is where the payment is processed, not which currency is on the receipt.

The way to see this on a statement is to look for a foreign-currency fee line sitting next to a transaction that was billed in AED. Gulf News’s list of triggers is the same: “Shopping in-store or online with non-UAE merchants”, ATM withdrawals abroad, and the AED option at checkout. A subscription priced in dirhams from a merchant that acquires its payments in Ireland or Singapore is an overseas transaction to my bank, every month.

Whoever converts keeps the spread

At the trading company where I work, a supplier who invoices in dollars is paid in dollars, from a dollar account, and the conversion happens on our side at a rate treasury can see and argue with. An invoice that arrives helpfully re-quoted in dirhams by the supplier’s bank gets sent back, because the rate inside it belongs to the supplier’s bank and nobody on our side agreed to it. The rule is short: whoever converts the money keeps the spread, so never let the other party do the converting.

The terminal in the hotel lobby is the other party. Its dirham option is the supplier’s bank re-quoting the invoice, with the markup printed on the slip because Visa insists, and my own bank’s fee still waiting at the end of the month. Pay in the currency the bill is written in, let the bank do the one conversion its fee sheet already charges for, and read the fee sheet for the card in the wallet, because 1.99% at one bank is 2.99% at another. If a trip is coming, the only number worth checking before it starts is that one, on the sheet the bank publishes, not on the screen the merchant controls.