You are here: Home - Saving & Banking - News -

Why you could earn more than expected with Sharia savings accounts

0
Written by: Paloma Kubiak
16/11/2018
Less well-known Sharia savings accounts are pulling in the crowds with their market-leading rates. But one provider may have another tactic for enticing savers.

Under Islamic principles, savers are forbidden from earning interest or profit and so Sharia-compliant accounts pay an expected or anticipated profit rate. But they’re not just for muslims; anyone can open them.

While there’s no guarantee the advertised rate will be paid, none of the providers have ever failed to meet the expected profit rate.

And in fact, one of the oldest Sharia banks, Al Rayan, has even paid out more than anticipated on several of its savings accounts since it was founded 14 years ago.

To date, four different savings accounts have beaten their prescribed profit rate:

  • On Demand Savings Account – 0.13% rather than 0.05% in May 2017
  • Direct Savings Account – 0.13% rather than 0.10% in May 2017
  • Young Persons Savings Account – 0.16% rather than 0.15% in May 2017
  • Young Persons Notice Savings Account – between 1.33% and 1.44% from May 2017 to October 2018 rather than 1.30%.

While the starting rates may not be as enticing as some of Al Rayan’s current offerings, and the increase to the expected profit rate conservative, it does however show that savers may be able to earn more than they expect.

Al Rayan said it was able to pay more because the money invested goes mainly in property in a Sharia-compliant manner, rather than poorly-performing equities.

Saquib Ismail, head of branches and retail deposits at Al Rayan Bank, said: “October was a dreadful month for some stock market investors, but it was a different story for young savers at Al Rayan Bank. We work on a profit basis where savers’ investments can sometimes achieve more than expected returns, just like in this case.”

Anna Bowes, co-founder of Savings Champion, said: “Sharia accounts have been part of the savings landscape for some time now and as they often pay some of the best rates available, are becoming more and more recognised and popular.

“With Al Rayan Bank paying more than expected, this is good news for savers and another reason why these savings accounts shouldn’t be ruled out, especially as the deposits are protected by the Financial Services Compensation scheme in the same way as any savings account. However, it is important to make sure you are happy with how the expected profit rate is generated and paid.”

What about other Sharia savings providers?

YourMoney.com contacted BLME and Gatehouse Bank to find out if they’ve paid out more than expected. Here’s what they told us:

BLME: “BLME was launched in 2007 and started to offer deposit accounts in 2009. It has always paid the expected profit rate and never paid less or indeed more. We would not pay more than the expected profit rate. If we were to structure the product like that it would be more akin to a ‘structured product’ which would mean it would not be a consumer savings account and treated differently from a regulatory and reporting perspective.”

Gatehouse Bank: “We have always paid the expected profit rate on accounts. The Bank was established in 2007, and the Bank began offering savings accounts in 2015. We have never paid out more than the expected profit rate – customers are only entitled to the expected profit rate.”

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Flight cancelled or delayed? Your rights explained

With no sign of the problems in UK aviation easing over the peak summer period, many will worry whether holida...

Rail strikes: Your travel and refund rights

Thousands of railway workers will strike across three days this week, grinding much of the transport system to...

How your monthly bills could rise as the base rate reaches 1.25%

The Bank of England has raised the base rate to 1.25% as predicted – the fifth consecutive rise in just six ...

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

DIY investors: 10 common mistakes to avoid

For those without the help and experience of an adviser, here are 10 common DIY investor mistakes to avoid.

Mortgage down-valuations: Tips to avoid pulling out of a house sale

Down-valuations are on the rise. So, what does it mean for home buyers, and what can you do?

Five tips for surviving a bear market mauling

The S&P 500 has slipped into bear market territory and for UK investors, the FTSE 250 is also on the edge. Her...

Money Tips of the Week