- 79% of Shariah-compliant savings accounts offer better average rates than conventional accounts
- The average rate on Shariah-compliant products was 1.54% compared with just 1.29% for mainstream products across eight different types of account
A direct challenge to the savings ‘establishment’ is being mounted as new research shows 79% of Shariah-compliant banks now offer better savings rates than the market average.
Gatehouse Bank surveyed eight different types of account – easy access, 1, 2, 3 and 5 Year Fixed Term and 30, 60 and 90 Day Notice accounts. It found average returns on Shariah-compliant savings products trumped their mainstream counterparts on all account types bar one – easy access.
Overall, the average rate on Shariah-compliant products was 1.54% while the average for mainstream accounts was 1.29% — a difference of 0.25%. All but three of the 14 Shariah-compliant accounts surveyed beat the market average.
Shariah-compliant savings accounts in the UK are growing in popularity, amongst both Muslim and non-Muslim savers, who are attracted by the better returns available and the ethical way they invest.
The table below reveals the higher returns offered by Shariah-compliant accounts when it comes to a range of everyday savings products, compared to the UK’s conventional equivalents.
The table below shows the average mainstream and Shariah-compliant rates for each category of account as of 09/07/18:
|Easy Access||1 year fixed||2 year fixed||3 year fixed||5 year fixed||30 day notice||60 day notice||90 day notice|
Charles Haresnape, CEO, Gatehouse Bank,commented:
“Shariah-compliant accounts are still relatively niche but this part of the market is growing significantly. Savers increasingly understand how they work, the ethical way they invest and, above all, the superior returns many offer.
“Shariah-compliant institutions have to work harder to get the public’s attention and offering better rates is one quick way to achieve this. But, on a more fundamental level, what we’re seeing is the emergence of a genuine challenge to the UK savings establishment.”
Gatehouse Bank is a UK bank and its deposits are protected by the Financial Services Compensation Scheme (FSCS) up to £85,000 per person. The minimum initial deposit is £1,000.
Conventional banks generate returns for customer savings accounts by making loans and investments. Gatehouse Bank similarly generates returns for its customer savings accounts but these are from profit-generating Shariah-compliant financing and investments, making its products popular with savers seeking ethical returns.
Being Shariah-compliant means that the bank invests ethically. Gatehouse Bank does not invest customer deposits in gambling, alcohol, tobacco or arms companies. Examples of eligible financing and investments include construction projects property, and sukuk (akin to bonds).
It also means that, instead of traditional interest rates, the bank offers an alternative known as the Expected Profit Rate (EPR).
In the history of the Bank, it has always paid the quoted EPR for the full duration of its fixed-term accounts. Only in extreme circumstances would the (future) EPR change but, even in that event, the EPR would still be paid to that point and the customer would have the option to withdraw their funds with no penalty.