For new expats baffled by the myriad of financial institutions and products on offer when they first arrive, it might be wise to learn a little more about the system before moving to Dubai, Abu Dhabi or anywhere in the UAE.

So where do you start?

To open the basic bank account, you will need your residency visa set up first, which generally takes a few weeks once you are in the country. Make sure you bring some cash or still have access to your international account for the first month or so. However there are some exceptions to the rule –

  • Some international companies have deals with specific banks, so contact your HR to see if you can open your account prior to moving to Dubai. Otherwise, once you are here, they can give you a letter which would allow you to open the account without your final residency visa.
  • There are some international banks where, if you are a premium customer, they will allow you to open international accounts before moving to Dubai. One example is HSBC Premier.

[Also read: New bank account: Setting up | Why choose a premier/ premium account?]

One thought to keep in mind is that you can get loans at cheaper rates in the UAE if you already have your salary transferred to the bank you are taking the loan from.

You can also compare products using our site if you need to find a school or nurserymobile phonehealth insurancehome contents insurancecar insurance, or broadband plan in the UAE.

Which banks are present in the UAE?

There are 50 banks in the UAE offering some over 750 different banking products including 206 credit cards, both Islamic and conventional, 77 personal loans, 59 car loans, 50 mortgages and 259 bank accounts. As you can see, there are many options for you to choose from and the differences can be quite confusing. You can compare all products on our site.

But before you take on the first account or credit card that comes your way, here are five things you need to know about managing your finances in the UAE:

[Also read: How to switch banks in the UAE]

1. The difference between Islamic and conventional banking

Because the UAE is a Muslim nation, there are both Islamic and conventional banking institutions available here. For those familiar with a conventional banking system what they need to understand is that the foundation of an Islamic bank is based on the Islamic faith and must therefore stay within the limits of Sharia law.

The main principles governing this are the absence of interest-based transactions, the avoidance of any economic activities that might involve oppression or speculation and the discouragement of any production of any goods or services that might contradict the religion.

While both systems offer the same financial products to customers, how they profit from that relationship differs. In Islamic banking all forms of interest are forbidden; instead the bank and the consumer divide the profits between them hence why an Islamic bank will talk about a profit rate rather than interest rate.

Both forms of banking are open to expatriates. Both Islamic and conventional banking offer competitive financial products so comparing the options could change your mind about where you want to deposit your income every month and which bank you want to take a credit card from.

[Also read: A guide to Islamic home finance | Why  choose an Islamic bank account? | Islamic personal finance explained |Islamic car finance explained | How does an Islamic credit card work? | The ever broadening appeal of Islamic finance in the UAE]

2. Credit card rates are high

There are over 195 different credit cards on offer in the UAE, and in 2012 there were four million cards in use. However, for those who run up debt on their card and only pay off the minimum balance, it can be a costly affair. The average credit card rate in the UAE currently sits around 30 – 35 percent. Compare that to the United States and the United Kingdom, where the average rate sits around 15 percent and the expense is clear to see.

Consequently, if you don’t pay off your credit card every month, you will be paying sky-high interest rates here and it will take longer to pay off the debt than it might do elsewhere.  You can find a guide to credit cards in the UAE if you need more information.

[Also read: Fees: A major decision in choosing a credit card | The lowdown on air miles credit cards | Let your credit card improve your golf handicap | Think twice before using your credit card abroad | How your credit card protects your purchases | Rewards or cashback: Which credit card is best? | Don’t ignore the little extras that come with your credit card]

3. Central Bank regulations are there to protect you

The Central Bank has a number of measures in place to try to protect consumers from unscrupulous lenders. In the boom days of the mid 2000s, it was relatively easy to borrow money with many taking on loan amounts that were totally unworkable with their salaries. As a result, many got into serious financial trouble and some ended up fleeing the country or being sent to jail for unpaid debts.

Since then a number of rules have been introduced. These include a 20 percent deposit for a car loan, a capped charge on minimum bank account balances of AED25 and a fixed charge on early loan repayments of one percent of the outstanding balance. This is just a sample of the rules in place to govern lending; it’s also worth remembering that those are the maximum banks can charge so you will find accounts and loans without those fees attached to them, so shop around for the best deals.

[Also read: Direct debits: Is the UAE about to catch up with the developed world? | 

4. Buying property is not always straightforward

Moving to Dubai and owning your own home is certainly possible for expats. However, there are two things you need to remember.  Firstly, you can’t buy any house you like the look of. Only certain developments are open to expatriates, including those built by big developers such as Nakheel and Emaar.

Secondly, you will probably need a hefty deposit. A new mortgage cap has been introduced which sees banks being forced to demand bigger deposits to secure a mortgage.

Our site also gives you the full comparison of downpayment on home loans; some available that only require a down payment of 15 percent or even 10 percent. However the proposed cap would see expats required to put down 25 percent on their first property and 40 percent on their second.

Beware of hidden fees too. Don’t just go for the lowest rate, as that might come with a big early settlement fee, such as five percent, and transfer fees, which are charged when you switch to another lender.

If you want to rent rather than buy, know your rights as a tenant and search our site if you need a personal loan to pay the rent up-front – although one check for 12 months’ rent in advance is becoming less common, you still won’t find monthly rentals as you do in the USA or Europe.

[Also read: Understanding mortgages in the UAE | How to purchase a buy-to-let property |What you need to know to rent your buy-to-let property |A guide to Islamic home finance]

5. A credit bureau is being set up

While credit bureaus are commonplace in developed economies around the world, until now the concept has not materialized here. However, the UAE is currently testing a federal credit bureau, which will bring in a number of changes to the UAE’s financial sector.

Under the current system banks struggle to know what other loans and credit cards a customer has, however, the Al Etihad Credit Bureau will have access to every consumer’s financial records allowing banks a much clearer idea of a potential customer’s credit worthiness.

The project is currently in the test phase but a full rollout of the service is expected next year with clients able to get hold of a copy of their own credit report. The system will reduce the huge amount of paperwork consumers currently need to take out a loan or credit card. Because the banks will know exactly what your financial behavior is like there will no need for reams of bank statements to prove your payment history.

For the consumer, however, it means they need to behave financially, ensuring they make repayments on loans or credit cards on time and don’t bounce any cheques. The good news, though, is that the Credit Bureau expects borrowing costs to fall by 30 percent, which could help reduce those sky-high credit card rates.

[Also read: Beware: The credit bureau is watching youDoes your company influence your credit-worthiness?]

Moving to Dubai or moving to Abu Dhabi can be a very exciting adventure, but make sure you understand how the banking system works.

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