Sharia-compliant savings: who they’re for, how they work and how to manage them 

This article was written by Faye Richardson from the Not-for-Profit team at Insignis.

Sharia-compliant savings follow the principles of Islamic law, but you don’t have to be Muslim or practise Islam to open an account. They can be part of a well-diversified cash strategy, often at a competitive rate to mainstream alternatives. In this guide we explain how Sharia-compliant savings work, how they’re protected and taxed, and when you might consider using them.

Anyone can use a Sharia-compliant savings account

Sharia-compliant savings follow the principles of Islamic law but anyone can use them. Perhaps you’re:

• An individual looking for an ethically aligned home for your cash
• A business who wants reserves to reflect your values
• A charity or not-for-profit whose mandate excludes exposure to certain sectors
• An adviser or accountant reviewing ethical options for client portfolios

With Sharia-compliant savings, your money grows differently

As with any savings account, you add money, your balance grows over time and you can access your money according to the account’s terms. The main difference is that under Sharia law, earning or paying interest isn’t allowed. That means your bank doesn’t lend your money and charge interest on it. Instead, it invests your money in line with Islamic beliefs – focusing on transparency, fairness and social responsibility. This excludes industries considered harmful under Islam, such as tobacco, gambling, alcohol and arms. The bank earns profits from these investments and returns a share to you, which is how your savings grow.

Sharia-compliant accounts use an Expected Profit Rate (EPR), not an interest rate

An EPR works like an interest rate, telling you the return you can expect over the term of the account. EPR reflects a projected share of profits rather than a guaranteed rate (although all Sharia-compliant banks on the Insignis platform have paid EPR to date). EPR is usually fixed for fixed-term products or variable for easy access accounts. If the EPR changes, your bank will give you the choice to keep saving at the new rate, or withdraw your money – including the profit you’ve earned up to that point with the original EPR.

Your money is protected by the Financial Services Compensation Scheme (FSCS)

All UK Sharia-compliant banks are regulated by the Financial Conduct Authority (FCA) and authorised by the Prudential Regulation Authority (PRA). So your eligible deposits are protected by the FSCS in the same way as deposits with any other bank. The current FSCS protection limit applies per authorised bank, per eligible depositor. As with any cash strategy, spreading money across multiple FSCS-protected banks can increase the proportion of your deposits that are eligible for protection.

Every Sharia-compliant bank also operates a Sharia Supervisory Committee

This is an independent panel of Islamic scholars who review the bank’s products and investments to confirm they remain Sharia-compliant. This gives you an additional layer of oversight on top of the standard FCA and PRA framework.

Choosing a Sharia-compliant provider doesn’t change your personal tax position

HMRC treats returns from Sharia-compliant savings accounts as interest, so income is taxed in the same way as returns from other savings accounts. If you’re unsure how savings income affects your overall tax position, we’d recommend speaking to a qualified tax adviser.  

Insignis is the simple way to manage your Sharia-compliant savings

With one application and one login, our platform gives individuals, businesses, charities, and advisers’ clients access to competitive savings products from a panel of FSCS-protected banks, including Sharia-compliant banks.

We don’t move money or make decisions for you – you decide which accounts to open and how much to save with each bank. With Insignis, you can:

• Compare EPRs and interest rates side-by-side, across easy access, fixed term and notice accounts;
• Diversify across multiple FSCS-protected banks to help manage counterparty risk and optimise eligible protection;
• Move money between accounts as rates and plans change, without a new application for each provider;
• Keep full oversight of what sits where, with consolidated reporting that simplifies tax time;
• Get support from our UK-based client services team, whenever you need it.

Why Sharia-compliant savings might work for you

For many savers, Sharia-compliant accounts sit alongside other accounts, as part of a diversified portfolio of savings and wider cash strategy. There are a few reasons to consider them:

1. Rate: these banks regularly feature at the top of the best-buy tables for easy access and fixed-term savings. Including them can lift the blended rate you earn across your portfolio.
2. Protection: holding deposits across more FSCS-protected banks helps you optimise the proportion of your cash that falls within eligible FSCS protection.
3. Ethical alignment: for individuals, businesses, and charities with an ethical mandate, these accounts offer a transparent way to exclude specific sectors.

Whether you’re considering Sharia-compliant savings for the first time, or adding them to an existing cash strategy, we’re here to help.

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