nigel woollsey

Nigel Woollsey

Online Writer
Published: 06/12/2018

At a glance

  • Sharia’ a banks operate under Islamic finance principles and their savings accounts are available to all savers.
  • To abide with Islamic beliefs, Sharia ‘a-compliant savings accounts must work in expected profit rates rather than interest.
  • These banks have put measures in place that guarantee the rate gets paid no matter what happens in the stock market or allow customers to withdraw funds if not.

What are Sharia ‘a banks?

Simply put Sharia ‘a banks (or Sharia ‘a-compliant banks) are UK banks that operate under Islamic finance principles. Islamic finance principles mean they cannot pay interest, instead offering an expected profit rate and the bank cannot invest in areas prohibited by Sharia ‘a law. These banks are regulated in exactly the same way as other UK banks, offer protection under the financial services compensation scheme and offer the same types of accounts and services as other types of banks.

How does a Sharia ‘a savings account work?

A savings account from a Sharia ‘a compliant bank operates in much the same way as a standard savings account. These savings accounts use expected or anticipated profit rates instead of interest rates. This is because under Sharia ‘a law, the earning or paying of interest is forbidden and the growth of money should be a shared risk. Sharia ‘a savings account providers have found ways to offer savings accounts that meet these requirements but still provide some protection to savers.

Three differences in Sharia ‘a savings accounts:

1. Expected profit rates not an interest rate

 Muslim banks give an expected profit rate to guide customers as to the return on their savings or investments. In this way, savings are grown through the payment of Sharia ‘a compliant profit.

Any profit you earn is taxed in the same way as interest earned on a non-Islamic savings account.

2. Savers can choose to share in any loss

Sharia ‘a law requires an element of shared risk in the growth of money, however UK regulation states that savings accounts must have their capital guaranteed.

With Sharia ‘a compliant savings accounts you can choose to take your portion of the loss and receive less money back. This allows Muslims to remain faithful to Sharia 'a law while enabling the account to still be described as a savings account. Savers can choose not to do this and receive their deposit back in full either during the investment period if the Sharia ‘a bank allows this or at the end of the agreed notice period or term.

3. Your deposit will only be used for ethical investments

Sharia’ law forbids Muslim banks from investing in, funding or dealing with prohibited businesses or interests. These include businesses associated with alcohol, pork, gambling, pornography, speculation, tobacco, those that deal in interest or other any other commodities that are forbidden (or ‘haram’) under Islamic law.

Is my money safe in a Sharia ‘a savings account?

As stated above, savings in UK accounts must be guaranteed under UK regulation. Islamic banks mitigate the risk of savings loss in many ways, so that the customer’s deposits and return do not suffer.

For instance, Bank of London & The Middle East (BLME) says that if a customer’s deposit is not producing the agreed profit rate, the account can be closed early without penalty, the original deposit will be returned in full, and the profit at the original expected profit rate will be paid anyway.

It should be emphasised that, to date, these banks have always achieved the expected profit rate offered to its customers.

In addition, all Sharia ‘a banks that are authorised in the UK are covered under the Financial Services Compensation Scheme where the first £85,000 of savings per person is protected– even in the event a bank fails or goes bankrupt.

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. These are some of the banks offering Sharia ‘a compliant savings at the moment:

  • Al Rayan Bank
  • Bank of London & Middle East (BLME)
  • Gatehouse Bank
  • Qatar Islamic Bank
  • UBL UK

Find a savings account now

Search for the best savings accounts using our tables, including those available from Sharia ‘a banks, building societies, challenger banks and high street banks.

Sharia ‘a savings accounts FAQ

Does an expected profit rate mean I may not get the whole amount?

In practice the expected profit rate is usually achieved, although crucially there is a chance it might not be. However, the rates are set carefully by the banks initially and it is rare that these are not achieved. If it looks like your savings will not be on course to achieve the anticipated profit rate, the bank will write to inform you.

Again, it should be emphasised that, to date, these banks have always achieved the expected profit rate offered to its customers.

Do I need to be a Muslim to open a Sharia ‘a savings account?

No, Sharia ‘a banks and savings accounts are open to all savers in exactly the same way as other savings accounts. 

Moneyfacts tip

Moneyfacts tip nigel woollsey

With the charging of interest forbidden under Islamic law Sharia ‘a banks also offer ‘House purchase plans’ in place of a traditional mortgage. This allows Muslims to purchase their own home in accordance with Sharia ‘a law.

To find out more see our guide to Sharia ‘a compliant house purchase plans.

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.

mosque at night

At a glance

  • Sharia’ a banks operate under Islamic finance principles and their savings accounts are available to all savers.
  • To abide with Islamic beliefs, Sharia ‘a-compliant savings accounts must work in expected profit rates rather than interest.
  • These banks have put measures in place that guarantee the rate gets paid no matter what happens in the stock market or allow customers to withdraw funds if not.

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