Thread: The best savings account you've never heard of

Everybody is searching for the best place to put their savings, but this account may just have slipped off your radar...



I'm on the hunt for a savings account at the moment. The trouble is, some cracking accounts, including the old ING Direct savings account, have been withdrawn.



So if, like me, you want a reasonable return on your money you might need to look beyond the usual suspects and check out an account that probably won't have appeared on your radar before now.



The Islamic Bank of Britain




One of the best savings accounts around comes from the Islamic Bank of Britain. Now, don't despair if you aren't a Muslim - these accounts are available to everybody, but simply abide by slightly different rules. More on that later - first, let's look at why the account is so good?



he simple reason is that with its two-year fixed term deposit account, you can expect a whopping return of 4.5%.

While there are a stack of two-year bonds paying 4.25% AER, from providers as diverse as SAGA, the Post Office and the AA, you simply will not be able to get the same rate as that on offer from the Islamic Bank of Britain.



Even better, the Bank has cut the minimum deposit size, so you can now open the account for as little as £1,000



However, there are a few things to keep in mind.



You aren't getting interest!


While you will get a return of 4.5%, that won't be paid as interest, as Islam prohibits the payment or receipt of interest.



Instead, to ensure the account is Sharia'a compliant, your cash will be placed into ethical trading activities (for example, the money won't be put into gambling or tobacco companies) which the bank believes will provide the agreed profit (i.e. 4.5%) over the agreed term.



Now, when I first read that, I'll confess alarm bells went off in my head. Handing your savings over to be gambled on investments that you have no idea about sounds suspiciously like what started the whole banking mess in the first place.



So how safe is your money?


However, there is one crucial difference with the Islamic Bank of Britain's Fixed Term Deposit Account. The bank monitors how your funds are doing compared to the target profit rate on a daily basis to keep abreast of how likely they are to hit the required rate.



And if at any time they believe that market volatility is likely to hit your return, they will inform you immediately. You then have the choice to close the account, or accept a lower rate of profit. All of the profit achieved up to this point by your funds is protected by the bank, as is the initial sum you deposit.



In other words, you won't lose a penny, but you might get a slightly lower return than expected. It's also worth noting that the bank claims that, to date, it has always achieved its target profit rates, while the fact that it is a member of the Financial Services Compensation Scheme should also provide a bit more reassurance.



You also have the option of receiving your profit every three months, or retaining it in the account to be invested with your deposit. But you can't make any withdrawals during the two-tear term.



Clearly going for a saving product like this is a little bit of a gamble, but if you are hell bent on getting a great return on your money then it's a cracking option. Islamic finance options may be out of the mainstream, but they certainly merit serious consideration.



Fancy a Sharia'a mortgage as well?


If the Islamic way of doing things appeals, then you should also consider a Sharia'a mortgage . Again things work in a slightly different way to a mainstream mortgage. Basically, you buy the property alongside the bank (they will stump up 70%-80%). Then, over the term of your mortgage , you make monthly payments towards the bank, buying its share of the property over time.



And the products do look pretty attractive - for a deal of up to 80%, you will be facing an effective interest rate of 4.99%.



The lowest rate you can get elsewhere at that loan-to-value is a tracker from Royal Bank of Scotland at Bank Base Rate plus 2.39% for two years, which is obviously much more attractive, but far more of a risk should Base Rate start to move upwards. It will also set you back £1499 just to get hold of it, compared to £299 for the Sharia'a deal.



In truth, the best thing to compare the mortgage to is a long-term fixed rate . And the best five-year fixed rate at 80% loan-to-value, from Nottingham Building Society, comes at 5.59% and will cost the best part of a £1000 in mortgage fees.





More from lovemoney.com

I saw some NZ Banks offering 9% on USD and BP, but it's based on unsecured loans so there is a small risk

Australia.
12 months fixed deposit 6.8%
10% with holding tax for foreigners

^But it's not halal.

^^ it's fixed deposit, but are they insured ? I wouldn't bet on that

In SA can get 7% on money market.

I would be worried about giving my money to an Islamic bank in the UK, one never knows where it would be 'invested'.

Originally Posted by BKKBoet

I would be worried about giving my money to an Islamic bank in the UK, one never knows where it would be 'invested'

The Islamic bank like all other UK banks is regulated by the FSA. The UK treasury department produces a Financial Sanctions List that all FSA regulated institutions must be able to prove that they do not deal with or allow any of their customers to deal with.

http://www.hm-treasury.gov.uk/financialsanctions

The penalties for not having procedures in place to show that you are able to comply with the requirements are fairly severe.

http://www.fsa.gov.uk/Pages/Library/Communication/PR/2002/123.shtml

Actually the Islamic Banking system is quite interesting. Back in the day, our people in Dubai were looking at ways to get into that market.

For that matter, the cheapest way to move money internationally is to bypass the Banks and go via the Islamic merchant network- but obviously, to a westerner, the idea of trusting someone in a turban over your High St bank is quite a leap of faith. Actually though, you can- the Banks routinely skim you, the Traders are true to their word.

Originally Posted by BugginOut

If Joe Public weren't so stupid and dependent, he'd compete with the bank to loan money to friends and family; all under legally binding contractual agreements, of course. This would cause banks to be competitive with public regulated interest rates and discourage usury.

Try and get a licence to do that.