Shari’ah-compliant Savings Accounts

When looking for a savings account to suit your needs, you have probably come across the term “expected profit”. Used as a substitute for interest, this is the key difference between Shari’ah-compliant providers and other financing options.

An expected profit rate is the likely money you will earn over your investment period. It operates like interest, but it is calculated differently in order to comply with Shari’ah banking regulations.    

Under Shari’ah law, interest is forbidden. It is seen as a means to promote unfairness in society, and is also known as “riba”.

Therefore, while non-Islamic banks pay interest on your savings deposit, a Shari’ah-compliant bank will instead use your funds to buy and sell different assets. This will generate a “profit” which will then be used to fund your rate.

These assets are also specific, with Shari’ah-compliant banking prohibiting investments into non-ethical funds. This means Islamic banks will not buy assets which do not adhere to the values of Islam, such as alcohol, pornography, gambling or tobacco, to name a few. In addition, they will not invest in other trading strategies such as shorting, options, and currency options.

Are Sharia’ah-compliant savings accounts ethical?

A Sharia’ah-compliant savings account can be one of the most ethical means of investing your funds on the market. As stated, Sharia’ah-compliant savings accounts will not fund investments which are linked to alcohol, pornography, gambling or tobacco to name a few.

With that being said, many other non-Islamic providers do not invest their funds into these types of activities either. Some are clear about this before you invest any money into their savings funds, while others carry more ambiguity.

Is my money safe in a Shari’ah-compliant savings account?

Yes, all Islamic banks adhere to the same regulations as other providers in the UK. This means all Shari’ah-compliant banks that are authorised in the UK are covered under the Financial Services Compensation Scheme (FSCS), whereby the first £85,000 of savings per person is protected in the event a bank fails or goes bankrupt. More information on this scheme can be found in our guide.