Sharia'a compliant savings accounts: Are they worth considering?

30th April 2014

Sharia’a compliant savings accounts are increasingly part of the UK banking landscape and whilst they are designed to allow the millions of Muslims living in the UK to save money without compromising their faith, anyone can open one. Despite this, many people are not aware what Sharia’a compliant accounts are and how they differ from standard savings accounts. In this article, we explain how the accounts work, how they compare to other accounts on the market and the points to consider before opening one.

What are Sharia’a Compliant Savings Accounts?

Sharia’a law forbids the paying or earning of interest. The payment of interest is the fundamental basis of traditional savings accounts in the UK, so it is difficult for Muslims to make their money work for them, whilst adhering to their faith. In order for a savings account to comply with Sharia’a law, it will offer an anticipated or expected profit rate instead of interest, which is usually paid, but is not guaranteed.

This means that, unlike most savings accounts, you can actually make a capital loss if you invest in a Sharia’a compliant account. Whilst providers are keen to point out that this does not happen in practice, it is an important consideration.   

Another interesting aspect of Sharia’a law is that it prohibits investment in companies involved in unethical activities, such as gambling, alcohol, tobacco or pornography. In the current climate of mistrust in banking ethics, this may appeal to those who want their funds to be invested ethically.

Which providers offer Sharia’a Compliant Savings Accounts?

There are a few providers that offer Sharia’a compliant savings accounts as follows;

Bank of London and the Middle East (BLME) - The largest Sharia’a compliant bank in Europe, offering wholly Sharia’a compliant accounts and services.

Islamic Bank of Britain – Established in 2004 as the UK’s first wholly Sharia’a compliant retail bank, all savings accounts offered are Sharia’a compliant.

United Bank Ltd – The provider offers both standard interest-paying accounts and specific Islamic products that are Sharia’a compliant.

It is important to note that funds placed with each of the above providers are protected by the Financial Services Compensation Scheme (FSCS). Therefore deposits of up to £85,000 (£170,000 for joint accounts) will be covered should the provider be unable to continue trading.

How do the rates compare with standard savings accounts?

As is the case with any type of savings account, in order to attract customers, the rates have to be competitive. Some Sharia’a compliant savings accounts, particularly among fixed term accounts, offer some of best rates currently available on the market.

The table below shows how Sharia’a compliant savings accounts compare to the standard equivalent products. To find out more about the accounts, simply click on the links in the table.

Fixed Term BondSharia'a Compliant AccountStandard Equivalent Product
18 MonthBLME - 2.25%Shawbrook Bank 2.05%
2 YearBLME - 2.50%Close Brothers 2.40%
3 YearBLME - 3.00%Close Brothers 2.70%
4 YearBLME - 3.25%Vanquis Bank 2.86%
5 YearBLME - 3.50%Vanquis Bank 3.11%

Click any of the links above to find out more about these accounts

Please note: we are paid if you click any of the BLME links above or if you open the Vanquis Bank 5 year bond.

So, should you consider opening a Sharia’a compliant account?

Sharia’a compliant accounts can form part of a balanced savings portfolio, as long as you are comfortable with the risk that the rate is not guaranteed in the same way as a standard interest rate. Whilst the anticipated profit rate is usually paid, it is not guaranteed, so it is important that you consider this carefully. Unlike most savings accounts, there is also a risk of loss of capital, which again needs to be considered. Any funds placed with the providers mentioned in the article are guaranteed under the Financial Services Compensation Scheme (FSCS), so as long as you keep within the limits, you need not be concerned about the providers going out of business.

The bottom line is that if you are aware of the differences and potential added risks of putting money in a Sharia’a compliant savings account and are comfortable with them, then they are another potential home for your money, with the additional benefit of your funds being ethically invested.

 

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