Islamic banks shake up savings market
They stand next to the challenger banks in the market-leading positions, particularly in the one and two-year fixed bond sectors.
Moneyfacts.co.uk’s research shows that the current Best Buy deals within each of these two sectors are dominated by Islamic banks. This has led to more competition from other brands looking to edge their way up the league tables.
Among the top one-year fixed bonds, BLME is top at 2.2%, followed by Al Rayan at 2.15% and QIB (UK) at 2.05%. Ten years ago, ICICI Bank, the Bank of Cyprus and FirstSave held the top spots.
Rachel Springall, finance expert at Moneyfacts.co.uk, said: “Savers who look away from Islamic banks will be missing out on the best returns for their cash. In addition, savers who do choose a Sharia’a compliant account will be investing ethically thanks to steadfast Islamic law principles.
“Islamic banks don’t pay interest, but they do pay an expected profit rate, and this can be comparable to other savings accounts, so savers would be wise to consider these deals. In fact, savers can get an expected profit rate of 2% or more on a one-year fixed bond with Islamic banks, but not the equivalent in interest from other mainstream brands. It’s also worth knowing that Gatehouse Bank stated it has never failed to pay its expected profit rate.”
Springall pointed out that the Islamic banks within the Best Buys are fully covered by the Financial Services Compensation Scheme and regulated by the Financial Conduct Authority. That means that if an Islamic bank defaults, they have the same level of protection as with any other provider under the same scheme.
She added: “Islam teaches that money has no intrinsic value, so individuals cannot be charged or earn interest, but savers do not need to follow the religion to apply for a savings account with an Islamic bank. In fact, an estimate by Gatehouse Bank revealed that 70% of their savings customers are non-Muslim.
“Clearly, the rise of the Islamic banks and subsequent rate improvement in the savings market should be celebrated, and as competition intensifies with challenger brands increasing rates to get a more prominent market position, it’s good news for savers all round.”