Sharia’a compliant savings accounts
Category: Savings
Author: Tim Leonard
Updated: 12/06/2018

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.

Why are Islamic savings accounts different?

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.

How can banks offer a savings account that complies with Sharia'a Law and UK regulation?

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:

  • Profit rate, not interest

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.

  • Choose to take a loss

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.

  • Ethical investment

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.

Which banks offer Islamic savings accounts?

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:

  • Al Rayan Bank only offers Sharia'a compliant accounts
  • Bank of London & Middle East (BLME) only offers Sharia'a compliant accounts
  • United National Bank offers both Sharia'a compliant and interest-paying accounts
  • Gatehouse Bank offers only Sharia'a compliant accounts

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Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.