Islamic savings accounts are based on Syariah Law practices. Islam prohibits earning money on interest which is employed under conventional savings accounts.
When you deposit your money in a conventional savings account, it is customary to expect a small interest based on the amount deposited. On the other hand, Islamic savings accounts work on profit sharing rather than interest.
Earning of Interest vs Profit Sharing
The reason Islamic savings accounts don’t use interest rates and apply profit sharing instead is because of how Syariah law prohibits usury in the form of interest rates. This is why profit rates are used instead. In fact, Syariah law prohibits quite a few things that conventional banking have no qualms applying in their system. They have terms for these which are:
Riba': Interest-based transactions like any borrowing or lending where interest is incurred. Syariah law claims that any form of interest is unlawful gains.
Gharar and Maysir: Transactions that involve the element of uncertainty, chance, randomness, or speculation. Syariah law insists on full transparency in financial transactions to avoid fraudulent behaviour.
Non-Halal Investing: Syariah law is against banks contributing their business to activities that run counter to Islamic values like non-halal meats, gambling, pornography, alcohol and prostitution.
Under the conventional wing, the bank can take your deposits and lend it to others in the form of a personal loan or housing loan. With the interest earned on loans given out by the banks, it can then pay you a small interest for using your available funds deposited.
However, since that’s considered riba’, an Islamic savings account can’t function this way. So instead, an Islamic savings account works by forming a business relationship: You provide the money, and the bank does business with it. As part of this relationship, a profit sharing ratio is stipulated (e.g. 95% of profits go to the bank, and 5% of the profits go to you).
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Another difference is that a conventional savings account will allow you to transact your debit card in any shop or business that accepts credit cards.
However, all transactions under the Islamic bank accounts are required to be halal in nature.
Therefore, an Islamic debit card will not be accepted in establishments that serve alcohol and serve pork as they are deemed non-halal. Technically, even if you were purchasing meat like chicken or beef that is not halal certified should not be transacted with an Islamic debit card or online bank account.
Unique Savings Accounts
We’ve covered the potential benefits of Islamic banking products (even for non-Muslims) before, but if you are looking out for something a little different, CIMB EcoSave Savings Accounts-i is an Islamic savings account which emphasises on the environment. It promotes the key feature of doing everything online, including eStatements via e-mail to reduce paper wastage.
Besides saving the environment, you could also opt for an Affin Barakah Charity AC-i account that makes it convenient to make donations to charity a breeze. There is no point in having all that money if you aren’t going to do some good with it.
On the other end of the spectrum, the conventional bank accounts like the Mach by Hong Leong Dream Jar is pretty cool too. Instead of having actual jars to divide your savings, you can open five virtual jars to start a standing instruction. If you hit your goal without any withdrawals, you will receive a top-up cash reward for being a good boy or girl.
If none of these bank accounts tickle your fancy, head on over to our savings account page and run through our extensive list using the comparison tool. Take your pick of Islamic or conventional savings accounts that is tailor made to your needs. Have anything else to add to this article? Do share your thoughts and ideas with us in the comments section down below!