Islamic banks could be the answer for higher rates

Charlotte Gifford



Daily Telegraph


Islamic banks technically cannot pay their customers interest – and yet for years they have been topping lists of the UK’s top-rate savings accounts. Today, Gatehouse Bank, the Bank of London and the Middle East (BLME) and Al Rayan Bank all offer some of the highest rates in the fixed-rate bond market. These Sharia-compliant banks each offer savings rates in excess of the Bank Rate, which is currently 5.25pc. So why do Islamic banks provide such generous rates – and are they available to anyone in Britain, even non-Muslims? Ravi Kumar, a senior manager at Gatehouse, said: “Islamic banks operate in accordance with Sharia principles, which state that money should be put to work to produce a return by generating wealth for the whole community, rather than producing profit in and of itself. As such, payment or receipt of interest is not permitted.” The returns offered by Shariacompliant savings accounts are therefore known as the “expected profit rate” ( EPR), rather than the “annual equivalent rate” (AER) interest paid by other banks. To generate this profit, the bank invests in Sharia-compliant funds and then shares this with the customer. These are funds that do not invest in sectors perceived to cause harm to society, such as alcohol, tobacco, gambling and the arms industry. It is in the bank’s interest to ensure they pay the “expected profit rate” and investments are closely monitored to make sure this happens. Gatehouse and Al Rayan and have always paid the EPR. Al Rayan’s 12- month fixed- term deposit account offers 5.85pc, just a fraction behind the current top rate of 5.91pc offered by Metro Bank. Its instant-access cash Isa is not so competitive, however, at just 1pc. BLME offers a range of fixed-term savings accounts, and a 90-day notice account. Offering 5.35pc, its notice account falls a little short of the top rate of 5.51pc, while its other fixed accounts are competitive; its one-year fix offers 5.7pc, and the two- year account is advertised at 5.6pc. Gatehouse’s one-year fixed- term account offers 5.8pc. Unlike most of the other Islamic banks, it also offers a range of tax-free cash Isas. Habib Bank Zurich offers six-month and 12-month fixed-term savings accounts at 5.3pc and 5.8pc respectively. Islamic banks are relatively small players in the British savings market and have to work harder to attract customers’ money. To do this they offer high savings rates – albeit sometimes for a short time. Mr Kumar said: “There is a misconception that Islamic finance products are exclusively for those of the Islamic faith, but the reality is that they are open to everyone.”