A guide to Sharia savings accounts
A number of Sharia savings products have upped their game in recent months, beating more familiar competitors to the top of the best buy tables. What are they and should you be tempted?
Under Islamic principles, savers are forbidden from earning interest or profit. Sharia-compliant products and accounts pay an expected or anticipated profit rate.
While this removes the element of certainty that an advertised rate will be paid on deposits, it allows the UK’s millions of Muslims to save without breaking Sharia law.
However, Sharia-compliant savings accounts aren’t just for Muslims – they’re available to all UK savers.
There are now several Islamic banks in the UK including BLME, Gatehouse Bank, and Al Rayan Bank, with many offering table-topping rates.
As well as top returns, they also appeal to the more ethical saver or investor as money is not used to fund businesses that engage in ‘unethical activities’ such as alcohol, tobacco, gambling or pornography.
Expected rate, not guaranteed: will they pay?
Unlike typical savings accounts, Sharia savings carry an element of risk as the rate is not guaranteed, it is expected. But to date, none of the providers have ever failed to pay out on the expected profit rate.
James Blower, managing director of Savings Guru, says: “I think the lack of guarantee is a reason why they’re not as popular as consumers are sceptical, but this is slowly changing.
“Sharia-compliant savings have developed their niche very well and will grow in popularity. As long as they continue to offer these rates and are accessible, savers will be tempted to try them out.”
High minimum investment levels but longer availability
Another feature of some Sharia-compliant products is their minimum deposit levels.
BLME requires an initial deposit of £10,000 for example, while Gatehouse and Al Rayan start at £1,000 minimum.
A plus-point of these higher-than-average minimum investment levels is that attractive rates are available for longer without being trampled by demand, unlike some mainstream savings deals that only last days.
Is your money protected?
If you’re tempted to go with an Islamic Bank, check whether your money will be protected under the Financial Services Compensation Scheme (FSCS) which protects deposits up to £85,000 should anything go wrong.
Al Rayan, BLME and Gatehouse are all regulated by the Financial Conduct Authority (FCA) and are members of the FSCS.