Shari’ah-compliant savings accounts

How do Shari’ah-compliant savings accounts work?

In many ways, Shari’ah, or Sharia, savings accounts work like any other standard savings account. However, the main difference is that, unlike mainstream savings providers, Shari’ah-compliant providers pay an “expected profit rate” instead of interest.

This is because, according to Islamic law, paying and earning interest is forbidden, or haram.

Shari’ah-compliant accounts are often viewed as an “ethical” form of saving (because deposits aren’t used in restricted industries or businesses that may be considered harmful), so they may appeal to many different savers, regardless of their religious belief.

There are easy access accounts and fixed rate bonds that comply with Shari’ah law, as well as Individual Savings Accounts (ISAs).

What is an expected profit rate?

The expected profit rate tells you the return you can expect to receive on your savings over one year and will be based on the profit the provider makes.

Providers will generate profit by using and investing money deposited into savings in a Shari’ah-compliant way, avoiding industries that may be considered harmful, and pay their customers a portion of this profit.

While the profit rate isn’t completely guaranteed as it’s dependent on the profit the provider makes, most accounts will pay the advertised return. Indeed, several providers state that they have never defaulted on their agreed expected profit rate.

If a provider thinks it won’t be able to pay out the expected profit rate, it should contact you. It may give you the choice of keeping your money in the account at a lower rate or closing the account and keeping the profit your money has earned already.

What are the differences between Islamic banking and regular banking?

The key difference between a standard savings account and an Islamic savings account is that a standard account pays interest whereas an Islamic (or Shari’ah) account pays an expected profit rate.

Despite this difference, Shari’ah savings accounts and standard savings accounts both display an annual equivalent rate (AER) to help you compare accounts and decide which ones to choose.

Islamic banks and standard banks also have different rules when it comes to how they use the money that savers deposit.

Standard savings providers may lend and invest money across a range of industries and sectors to give savers a return on their money.

However, Shari’ah-compliant providers will only use money in a way that adheres to Islamic law. For example, they will only invest in ethical, Shari’ah-compliant activities, such as property and metals, and won’t put their money into high-risk speculative schemes or sectors such as gambling, alcohol and tobacco.

These providers will typically have an advisory body that ensures all their activities are Shari’ah compliant.

Learn more in our guide to Shari'ah banking.

Choosing the best Shari’ah-compliant savings account

As with any savings account, it’s important to consider a range of features when choosing a Shari’ah-compliant account.

The expected profit rate will be one of the main factors savers look at, as this will determine how much of a return they could get on their money. You may find that Shari’ah-compliant accounts often feature near the top of our savings charts and offer a competitive return, but this isn’t always the case.

However, as well as the expected return, you should look at:

• the minimum deposit requirements
• how you can open and manage the account
• whether there are any restrictions on adding to or withdrawing from the account.

See our chart above to compare the best Islamic savings accounts UK providers currently offer. Bear in mind that, while these accounts may be known as “Islamic” accounts and follow Islamic (or Shari’ah) laws, they are open to savers of any (or no) religious belief.

Alternatively, you can view our standard savings chart pages to see how Shari’ah-compliant accounts compare to other options. All the Shari’ah savings accounts will say “expected rate” under the AER.

Are Shari’ah savings accounts safe?

Money in a Shari’ah savings account with a UK provider is as safe as money in any other regulated savings account.

All Shari’ah savings providers should be regulated by the Financial Conduct Authority (FCA) and the money you deposit with a provider (up to £120,000) is protected by the Financial Services Compensation Scheme (FSCS).

The FSCS will cover any losses up to this amount should the provider go bust, for example. Bear in mind that some providers share a banking licence, which means the £120,000 limit will apply to your total deposits across all these brands.

Can anyone open a Shari’ah savings account?

Anyone can open a Shari’ah savings account, regardless of their religious beliefs. Although they abide by Islamic laws and principles, these accounts are not restricted to Muslims and are open to all savers.

Because Shari’ah providers only invest in certain industries, savers looking for an ethical option for their money may be particularly interested in these accounts.

As with standard savings accounts, to open a Shari’ah savings account you will often need to be at least 18 years old, provide some form of ID (such as a driving licence) and deposit a minimum sum into the account.