What is an Islamic bank account?
Key takeaways
Islamic bank accounts follow Sharia principles and do not pay or charge conventional interest.
They can offer many of the same everyday banking features as standard UK accounts.
Expected profit rates aren't necessarily guaranteed, so check how returns are calculated and paid.
Compare fees, features, FSCS protection and Sharia governance before choosing an account.
What is an Islamic bank account?
An Islamic bank account is designed to follow the principles of Sharia law. One of the key differences from conventional banking is that Islamic finance does not allow interest (called riba) to be paid or received, so banks use different structures for deposits and any returns.
Depending on the account, you can still get many of the features you'd expect from a conventional bank account, such as making payments, using a debit card and managing your money online or through an app.
You don't have to be Muslim to open an Islamic bank account and there's no single approach to Islamic finance. Different scholars and Sharia supervisory boards can interpret principles differently, meaning products may be structured in different ways. It's therefore important to check the terms of an account before applying.
How does Islamic banking work?
Islamic banking works differently from conventional banking because banks cannot pay or charge interest.
Instead, they use Sharia-compliant ways of handling money and generating income, which can include buying and selling assets, leasing or investing money. Depending on the account, customers may receive an expected profit rate rather than interest.
For example, an Islamic current-account deposit may be treated as an interest-free loan, known as qard. Savings deposits may use structures such as wakalah, where the bank manages money on the customer's behalf, or murabaha, which involves buying and selling an asset at an agreed profit.
Islamic banks must also avoid activities prohibited under Sharia principles, such as gambling and alcohol. The exact way an account works varies between providers and products, so check the account terms and Sharia governance information.
What is an expected profit rate?
An expected profit rate is the return a provider aims to generate from your money through Sharia-compliant trading or investment arrangements, rather than interest.
The rate may be fixed, targeted or variable depending on the account, so check the terms to see what happens if it isn't achieved and whether the stated return is guaranteed.
What does Sharia-compliant mean?
Sharia-compliant means a banking product or service is structured to follow principles of Islamic law, including rules governing how money can be earned, invested and handled.
In banking, this generally means avoiding interest and activities considered prohibited under Sharia principles, while using alternative ways to provide financial services.
How does an Islamic bank account differ from a standard bank account?
There is plenty of crossover and a few differences between standard UK accounts and Islamic bank accounts. Our table, below, covers the main features.
Feature | Standard UK bank account | Islamic bank account |
|---|---|---|
Interest | May pay interest on positive balances or charge interest | Does not pay or charge |
Returns for customers | Savings accounts may offer | Returns based on an agreed |
How the bank earns money | Income from interest, fees | Uses Sharia-compliant |
Who can open one? | Generally available to anyone | Available to Muslims and |
FSCS protection | Eligible deposits are generally protected by the UK Financial Services Compensation Scheme, subject to its rules and limits | Eligible deposits with UK-authorised providers can be covered by the FSCS, subject |
Everyday banking | Can offer features such as | Can offer many of the same |
What types of Islamic bank accounts can I open?
Islamic banking offers current, savings and business accounts, with some providers also offering accounts for children. While the underlying principles differ from conventional banking, these accounts provide many of the same day-to-day banking services.
What is an Islamic current account?
An Islamic current account is designed for everyday banking and can be used to receive your salary or benefits, make payments and manage your money. Unlike a conventional current account, it generally doesn't pay interest and may not offer an interest-charging overdraft.
Typical features can include:
Receiving wages, pensions or benefits
Debit cards and cash withdrawals
Direct debits and standing orders
Faster Payments and bank transfers
Mobile and online banking
International payments
Overdraft alternatives, depending on the provider
Some providers also charge account-maintenance fees or require you to maintain a minimum balance, so check the full terms.
What is an Islamic savings account?
An Islamic savings account allows you to save money while following Sharia principles. Rather than paying an interest rate, these accounts generally advertise an expected or anticipated profit rate, with the way that profit is generated and distributed depending on the account structure.
You may find:
Easy-access, notice and fixed-term accounts
Cash ISAs
Expected or anticipated profit rates
Profits generated through Sharia-compliant investments or arrangements
Rules covering what happens if the expected profit isn't achieved, such as whether you receive a lower return or the provider uses some of its own profit to maintain the expected rate.
Withdrawal restrictions, including notice periods or penalties for early access
The expected profit rate isn't the same as a guaranteed interest rate, so check the account's terms to understand how profits are calculated and paid.
Can I open an Islamic business bank account?
Islamic business accounts are available from some providers, although eligibility and features vary. Depending on the bank, accounts may be available to sole traders, partnerships and limited companies.
Features and requirements can include:
International payments and foreign exchange services
Cash-deposit facilities
Minimum turnover or balance requirements
As with personal accounts, check the provider's eligibility criteria and fees before applying.
Restrictions on certain business activities
Documents needed to verify you and your business
As with personal accounts, check the provider's eligibility criteria and fees before applying.
Are there Islamic bank accounts for children?
Some providers offer Sharia-compliant savings accounts for children, although the choice can be more limited than for adults. These are generally junior savings products rather than everyday current accounts. Features and conditions may include:
Junior savings accounts with an expected profit rate
A parent or guardian controlling the account
Requirements for the parent or guardian to be an existing customer
Restrictions on when and how the child can access the money
Junior Cash ISA options, depending on the provider
Age limits, account control and access rules vary, so check the individual provider's terms before opening an account.
Key terms in Islamic banking
Here are some of the main terms used to describe the principles and structures behind Sharia-compliant banking.
Qard: An interest-free loan; in banking, current-account deposits may be structured on this basis.
Murabaha: Where an asset is bought and then sold to the customer at an agreed profit.
Wakalah: An agency arrangement where one party acts on behalf of another, often used for managing savings deposits.
Mudarabah: A profit-sharing arrangement where one party provides capital and another manages the investment, with profits shared according to an agreed ratio.
Riba: Interest or an unjustified increase on a loan or financial transaction, which is prohibited under Islamic finance.
Gharar: Excessive uncertainty, ambiguity or lack of clarity in a contract or transaction.
Maysir: Gambling or speculation based on chance, which is prohibited in Islamic finance.
How do Islamic banks make money?
Islamic banks make money through Sharia-compliant contracts and transactions, rather than charging or paying interest.
Depending on the product, a bank may buy an asset and sell it for an agreed profit (murabaha), share investment profits with a customer (mudaraba), manage money on a customer's behalf (wakalah), or lease an asset (ijara).
These arrangements can involve real assets or commercial activity, rather than simply lending money for interest. Not every structure is used for every type of account, and the way a product works will depend on the provider and its Sharia-compliance requirements.
Where can Islamic banks invest my money?
Islamic banks and other providers generally apply Sharia screening to the activities and investments they finance. The exact rules can differ between providers. Activities commonly excluded may include:
Alcohol production or sales
Gambling and betting
Pornography and adult entertainment
Pork and pork-related products
Conventional interest-based financial services
Certain weapons-related activities
Tobacco-related activities
Who decides if an account is Sharia-compliant?
The provider is responsible for demonstrating how its products meet its stated Sharia requirements. This may involve a Sharia supervisory board, independent Islamic scholars and internal compliance teams, with products subject to audits or periodic reviews.
Not every provider uses the same governance structure, scholars can disagree on particular products, and the scholars may be appointed by the provider. Customers should check the provider's own Sharia certification, rulings and governance information.
Can anyone open an Islamic bank account?
Islamic banking products are generally available to Muslims and non-Muslims, although providers set their own eligibility criteria. These may include minimum age and UK residency requirements, identity and address checks, minimum deposits and credit checks.
Some providers may ask how the account will be used. Business customers may also need to operate in sectors permitted under the provider’s Sharia policy. Always check the individual provider’s eligibility requirements before applying.
What documents do I need to open an Islamic bank account?
The documents you need will depend on the provider and type of account, but you’ll usually need:
Proof of identity – such as a passport or driving licence
Proof of address – such as a recent utility bill, bank statement or council tax bill
Proof of income – which may be required for some accounts or applications
Business documents – for business accounts, such as company registration details and information about your business activities
Additional information – providers may ask for further documents to meet identity, financial crime and Sharia-compliance requirements
Can I switch to an Islamic bank account?
Yes. Switching to an Islamic current account generally works in the same way as switching to any other UK current account – the main difference is how the new account is structured and operated.
If the Islamic bank participates in the Current Account Switch Service (CASS), a full switch normally takes seven working days.
Your balance, direct debits, standing orders and regular payments are transferred automatically, and your old account is closed.
Any existing overdraft will usually need to be assessed separately by the new provider, particularly as Islamic current accounts generally don't offer conventional, interest-charging overdrafts.
Some providers may allow a partial switch, so you can keep your existing account open. If CASS isn't available, you'll need to arrange the transfer of payments, including your salary or benefits, yourself.
Do Islamic current accounts offer overdrafts?
Islamic current accounts generally don't offer conventional overdrafts that charge interest, as this would conflict with the prohibition on riba.
Some providers may offer alternative, fee-based emergency facilities, subject to their terms. An unauthorised negative balance may still result in charges, depending on the provider.
If you miss a payment or don't repay money owed, the consequences can include charges, restrictions on the account or other action under the provider's terms.
Are Islamic bank accounts free?
Islamic bank accounts aren't necessarily free. Providers may charge monthly or minimum-balance fees, unpaid-payment charges, international transfer and foreign-currency fees, cash-withdrawal or replacement-card charges, and early-access fees on fixed-term savings. Compare the account's overall costs and features, rather than focusing solely on the absence of interest.
Is my money safe in an Islamic bank account?
Your money's safety depends on the bank, its authorisation and the type of product, rather than whether it follows Islamic principles.
Eligible deposits with a UK-authorised bank are generally covered by the FSCS up to £120,000 per eligible person, per authorised firm, including qualifying joint accounts.
Different trading names may share a banking licence, so check the provider using the FCA Financial Services Register and the FSCS protection checker before opening an account.
UK Islamic banks must meet the same applicable financial-regulation requirements as other authorised banks, while they may also have their own Sharia governance arrangements; religious certification does not replace financial regulation.
What happens if an Islamic bank does not achieve its expected profit rate?
If an Islamic bank doesn't achieve its expected profit rate, what happens depends on the account's terms and underlying contract.
The provider may reduce the return, although it may sometimes use some of its own profit to meet the expected rate.
Customers should be told about any relevant changes according to the account terms and may be able to withdraw their money, although fixed-term accounts can have early-access restrictions or charges.
Advantages and disadvantages of a Sharia bank account
Pro of an Islamic bank account
Sharia principles. Can suit customers who want their banking to follow Islamic financial principles and avoid conventional interest.
Ethical screening. Restrictions on certain industries may appeal to customers seeking a particular approach to responsible banking, although definitions of ethical finance vary
Expected-profit savings. Some accounts offer expected-profit returns through Sharia-compliant structures rather than conventional interest.
Accessible to all. Islamic accounts are generally available to Muslims and non-Muslims, subject to the provider’s eligibility criteria.
Cons of an Islamic bank account
Fewer choices. There are generally fewer Islamic providers, products, branches and comparison options than in the conventional market.
Potentially higher costs. Some accounts have monthly fees, minimum-balance requirements or other charges.
Limited overdrafts. Conventional interest-charging overdrafts aren't generally available, which can limit borrowing options.
Different terms. Expected profits may not be guaranteed, and views on Sharia compliance can differ between providers and scholars.
How do I check whether an Islamic bank account is right for me?
Before applying, ask yourself:
What will it cost? Compare monthly fees, minimum-balance requirements and charges for services you expect to use.
Can I access my money easily? Consider branch availability, telephone support and the quality of online and mobile banking.
Do I understand the expected profit arrangement? Check how profits are generated, calculated and paid, and what happens if the expected rate isn't achieved.
How does it compare? Compare the account's costs, features, returns and terms with other Islamic and conventional options.
If you're unsure whether a product meets your personal interpretation of Sharia principles, consider seeking advice from a suitably qualified Islamic finance scholar or adviser.
Other useful guides
If you’re looking for more information on Islamic finance, our following guides may help:
How do I compare Islamic bank accounts?
Compare Islamic bank accounts in much the same way as you would regular UK bank accounts, starting with the features and costs that matter most to you.
Look at the account type, monthly fees, minimum balance and expected profit rate, alongside everyday banking features such as debit cards, payments and mobile banking.
You can also check FSCS protection, Sharia supervisory arrangements, access to branches, international-payment fees and any overdraft alternatives, as well as eligibility and whether the account supports the Current Account Switch Service.
Author
Tim Heming
Personal Finance Expert
Tim Heming is a journalist and editor who has written about personal finance for national newspapers and consumer websites for 15 years. Tim enjoys providing no-nonsense information to help consumers...
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Alan Cairns
Senior Content Editor
Alan breaks down money, home, and energy topics into plain English to help you save money. Ask him about pound cost averaging or Balkonkraftwerk.
