Hargreaves Lansdown has announced a tie-up with Islamic bank the Bank of London and the Middle East (BLME) which is offering market-leading rates on one, two and five-year fixed rate bonds.

BLME’s savings products will be available on Hargreaves Lansdown’s Active Savings platform which launched last year. Active Savings is an online savings marketplace, which lets you open a single account, then move your money between accounts from different banks and building societies quickly and easily without having to complete another application.

It means, for example, you can put your money into an easy access account, and then move a chunk of it to a fixed term account with an entirely different bank in just a few clicks.

Danny Cox, head of communications at Hargreaves Lansdown, said: “Sharia banks offer some of the best rates around – particularly when it comes to fixed rate savings – and make the rates from the high street giants look like puny small fry. A one-year fixed rate account from the Bank of London and the Middle East offers three times the interest of a high street alternative.

“Sharia accounts may be less recognisable to UK savers, but they are protected by the Financial Services Compensation Scheme in the same way as any other savings account, so getting to grips with them could prove highly rewarding.”

How Sharia banks work

Typically in the UK, when you put money in a bank account, the bank lends that onto someone else and earns interest.

But Sharia banks reflect Sharia beliefs that interest should not be paid on savings. Instead, savings money is pooled and invested in a number of ethical companies – excluding those involved in alcohol, tobacco, arms or gambling. Savers earn a share of the bank’s profits. That’s why instead of getting an interest rate you get an “expected profit rate”.

As with any other bank, what happens behind the scenes doesn’t really make a difference to you, because you put the money in an account, you get the rate you were expecting, and your money is protected by the FSCS. From a savers’ perspective, saving with a Sharia bank looks and feels exactly like saving with any other bank.

However, there is one important difference; with Sharia banking there’s the possibility that part of the way through the fixed period, the bank concerned may feel it can’t deliver the expected profit rate, so will let you know.

At that point, you can take your money out with the profit you have earned so far (at the rate you expected when you started the account) – or you can agree to a lower profit rate. This hasn’t happened so far, but is a possibility.