Sharia-compliant savings accounts are offered by banks that adhere to Islamic finance laws. This means they follow the principles of Islam. Examples of UK banks that provide Islamic financial services include:
Sharia savings accounts can often offer some of the most competitive savings rates in the market. But how do they work?
Rather than offering an annual equivalent rate (AER), a Sharia-compliant bank will give you an Expected Profit Rate (EPR). The EPR is shown as a percentage, so you can easily compare it to the AER interest rates offered by banks that don’t follow Islamic law.
If you open a Sharia savings account (also known as a halal savings account), your EPR will be driven by profits from the bank’s Sharia-compliant activities, and so the rate is not guaranteed. You will receive a share of the bank’s profits, but not any interest – which is not allowed under Islamic law.
With the money you earn coming from a bank’s Sharia-compliant activities, this could be seen as a more conscientious way to save. Their activities are considered ethical because they're not linked to anything that’s viewed as harmful in Islamic law. This means you won’t be making money from things like arms, alcohol, tobacco and gambling.
People of any faith and no faith can save their money with a Sharia-compliant bank. You don’t have to follow Islam to save your money this way.
If you meet the eligibility criteria for the specific bank and savings account, you should have no problems getting started. Eligibility criteria can include things like proof of age and address, and initial minimum deposits.
Sharia-compliant regulated banks in the UK are just as safe as any other regulated bank in this country. They are protected by the Financial Services Compensation Scheme (FSCS), which steps in if a bank fails.
The FSCS will protect up to £85,000 (or £170,000 for joint accounts) of the total amount you hold with one bank. Therefore, if you have more than that amount currently held with that bank, The additional amount you hold over £85,000 is not likely to be covered. Different banks from the same banking group (which share a banking licence) are treated as one bank.
To find out more, visit the FSCS website.
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