Islamic savings accounts offer a Sharia'a-compliant way of saving for the estimated 2.9 million Muslims living in the UK.
However, these accounts aren't restricted to Muslims – they offer an ethical alternative to people of all faiths.
Sharia'a Law, as set down in the Qur'an and Sunnah, forbids the earning or paying of interest. This poses a problem for Muslims, particularly those living in the West, where traditional deposit-taking and lending methods are fundamentally based on interest payments.
In addition, Sharia'a requires an element of shared risk in the growth of money – so it's more like profit and loss. This is another issue in the UK, where a savings accountmust have what is known as capital certainty. In other words, savings accounts should not carry investment risk – you will get your money back in full when you want it, or at the end of an agreed notice period or term.
Islamic savings accounts may at first glance appear to be the same as any other account, but there are several key differences that allow UK Muslims to save in accordance with their faith:
Islamic savings accounts offer an anticipated or expected profit rate, not an interest rate. Although in practice this profit rate is usually achieved, crucially, it may not be. If it looks like your savings will not be on course to achieve the anticipated profit rate, the bank may write to inform you. Any profit you earn is taxed in the same way as interest earned on a non-Islamic savings account.
UK regulation means that savings must be capital certain – you cannot lose money in a savings account because of bad investment performance. That is, unless you choose to. If your savings account actually generates a loss, you can choose to take your portion of the loss and receive less money back. This allows Muslims to remain faithful to Sharia'a while enabling the account to still be described as a savings account.
Money held in an Islamic savings account is invested, not lent out (as that would involve interest). Also, the money is not used to fund businesses that engage in unethical activities, as defined by Sharia'a Law. So, you can be confident that your money will not help fund the alcohol, tobacco, gambling or pornography industries, for example.
There are some specialist Islamic banks that only offer Sharia'a compliant services. There are also some banks that offer Sharia'a compliant accounts as part of their savings range: