Get a better rate with a Sharia savings account

Savings accounts that are compliant with Islamic Sharia Law are now common within UK banking. And with competitive rates on offer, people of all religions stand to benefit.

Islamic banking is on the up.

Formerly, Britain’s 2.8 million Muslims were forced to compromise either their interest payments or beliefs in the search for a decent savings account. This is because traditional UK banking methods do not adhere to Islamic Sharia law.

Now, several banks now offer Sharia-compliant products. And what’s more, some non-Muslims are now turning to these new accounts for both their decent returns and the alternative philosophy that backs them.

Islamic banking

The principles of Islamic banking are taken from Sharia – the religious law and moral code set out in the Quran and Sunnah. The key difference between this form of banking and the traditional Western method is a ban on interest payments. This is because Muslims are not allowed to benefit from lending out money or receiving money.

For example, in the case of an Islamic mortgage the borrowers and the bank will usually both put forward money and buy the property in a partnership. From here the partnership will rent out the home to the borrower and share the takings. At the same time, the customer will gradually buy out the bank’s share of the property – the equivalent of paying off a mortgage.

Islamic savings accounts are slightly different. Instead of paying interest, profits made off deposits are ‘shared out’. These profits come from ‘real’ transaction investments, such as putting money into a company.

Deposits are not invested in complex financial products (as lending money in banned) or anything that is contrary to other Islamic teachings (alcohol or tobacco companies). This alternative, ethical stance is one reason why many non-Muslims are attracted to Sharia compliant accounts.

So what do the rates on the savings deals looks like?

Bank of London & Middle East

The Bank of London and The Middle East (BLME) has some of the best-paying Sharia-compliant accounts around. Here’s a rundown of the anticipated profit rates on offer for BLME’s Premier Deposit Account:

Term	Anticipated profit rate
One year	3.45%
Two years	4.05%
Three years	4.30%
Five years	4.80%

These accounts are top-of-the-table paying deals across each fixed term bracket. Of course none of the accounts have an ‘interest rate’. However as BMLE is your ‘agent’ in making Sharia-compliant investments, it will monitor the deposit to ensure the agreed profit rate is met.

There is a downside to these accounts though: the minimum deposit is a lofty £50,000. But if you can deposit even more than this you’ll earn a high rate of interest. The one-year bond rate shoots up to 3.55% for deposits of over £100,000 and 3.70% for half a million or more. At the other end of the term spectrum, the five-year bond will pay 4.90% for £100,000+ deposits and a full 5% on deposits that are more than £500,000.

Other Sharia saving accounts

The Islamic Bank of Britain (IBB) is one of the only other providers offering Sharia-compliant savings accounts. The bank’s Direct Savings Accounts have a minimum deposit of just £1,000 and profits are paid monthly. The 120-day notice account offers a 4.00% profit rate for the first 60 days, dropping to 2.00% thereafter. An 18-month account is available paying out at 2.25%, while the two-year bond has a rate of 3.00%.

Both the IBB and BLME along with a host of other mainstream banks such as HSBC, Lloyds and RBS offer Sharia-compliant current accounts. However none of these pay any interest.

Regular bonds

And finally, here’s a brief rundown of the best paying savings bonds currently on the market – none of which are Sharia-compliant.

Account	Term	Rate	Minimum deposit
First Save 1	One year	3.60%	£1,000
Allied Irish Bank (GB)	One year	3.50%	£1,000
Allied Irish Bank (GB)	Two years	3.90%	£1,000
Halifax Fixed Saver	Two years	3.75%	£500
Vanquis Bank High Yield	Three years	4.15%	£1,000
Vanquis Bank High Yield	Five years	4.65%	£1,000

So as you can see, you’re able to beat the BLME one-year bond by opting for First Save’s 3.60% deal or Allied Irish Bank’s 3.50% account. However for longer terms, the BLME bonds win out, making them a wise choice - if you can scrape together the £50,000 minimum deposit that is.

Your experiences

Have you ever used a Sharia-compliant bond? What are you views on Sharia banking?

Let us know using the comment box below.

More: The savings account that's better than the best | NS&I cuts savings rates