Key Highlights:

• UAE banks to increase minimum account balance from Dh3,000 to Dh5,000 starting June 1.
• A Dh25 monthly fee will apply for accounts below the new minimum, unless linked to a loan or credit card.
• Fee waivers are available for customers with salary transfers of Dh15,000+ or balances of Dh20,000+.
• Policy change may impact low-income residents, prompting calls for more flexible banking options.

A number of UAE-based banks will raise the minimum balance requirement imposed by the Central Bank’s personal loan regulations from the existing Dh3,000 level to Dh5,000.

According to an Arabic daily, Emarat Al Youm, reporting on Tuesday, one bank has recently imposed these fees, and the new rule will go into effect on June 1.

Unless they own a credit card or have personal financing with the bank, customers who fail to meet the new Dh5,000 minimum amount will be charged a Dh25 monthly fee under the updated policy.

“A minimum balance is the bare minimum of money that is required in a bank account to keep it active or to get benefits like earning interest,” said Vijay Valecha, chief investment officer at Century Financial.

“Banks set these minimum balances for several reasons,” he told Khaleej Times. It enables them to meet regulatory financial standards and have more money in deposits, which they can utilize to make loans. Raising the minimum balance requirements enable banks to cover the high costs of client account maintenance and profit from additional fees received.

The current system, implemented in 2011 and applicable to people without a credit card, overdraft facility, or loan, requires a minimum monthly balance of just Dh3,000 to avoid the Dh25 cost.

Fees Waived

According to a document that Emarat Al Youm was able to get, fees will not be charged to customers who keep a balance of Dh20,000 or more. For those who get a salary transfer of Dh15,000 or more each month, fees will also be waived. 

The Dh5,000 monthly maintenance balance will not apply to customers with a credit card, overdraft facility, or bank loan who receive a monthly salary transfer between Dh5,000 and Dh14,999.

A Dh25 fee will be applied to clients who transfer between Dh5,000 and Dh14,999 per month without a credit card, overdraft facility, or loan and those who transfer less than Dh5,000. Bank customers who do not fit into one of the aforementioned groups will have to pay a fee of Dh100 or Dh105, depending on the type of account.

Financial Disadvantage

According to finance expert Dr. Ben Lebig, who spoke to Khaleej Times, this new policy disadvantaged many residents, even if it is economically sound, given the increased overhead costs of bank services. 

Residents of the United Arab Emirates, particularly those employed in the service industry, do not enjoy high earnings, and the majority of them would be below the recommended threshold.

Lebig explained that the banking policy change would have two immediate effects: “In order to meet the minimum balance requirement, employees will need to cut back on both their personal spending and their payments to their family back home. Or they will have to take out loans or credit cards.

“This rule seems almost impossible to fulfill for those workers whose salary is just enough to cover their monthly expenses and send money back home,” he continued.

It would be appreciated if banks would think twice about raising the minimum balance or, at the very least, offer a range of minimum balances and fees based on different pay ranges. Lebig, who also offers free financial advice to Filipinos living abroad, continued, “In this way, it will minimize the impact on low-income workers.”

More Options

According to Valecha, companies can choose to transfer salaries through financial institutions or money exchanges as part of the Wage Protection System (WPS). These institutions promote WPS compliance and offer dependable wage disbursement. Those who don’t fulfill the minimum balance requirements and make less than Dh5,000 can significantly benefit from this.

Exchange houses are affordable options, particularly for small and medium-sized enterprises. The payroll card provides improved security and limitless withdrawals. 

Valecha added, “Another option for companies is to open a corporate account so that employees earning a salary of less than Dh5,000 can benefit from prepaid salary cards, which do not require a bank account.” Valecha said that the cards are accepted at branches throughout the United Arab Emirates and that there is no charge issue.

“Opening a zero-balance account, low-cash-balance accounts inside the UAE, or using digital account services that have no fees and charges is an alternative,” Valecha added.