16.01.2020 | 5 minutes estimated reading time | Print this article

What are ethical savings accounts?

There’s a generally accepted public perception that living an ethical lifestyle is more important than ever, with a focus on environmentalism, veganism, gender equality, and much more – including the way we manage our finances. There are more ethical savings accounts available than ever before as people are more interested in taking greater moral responsibility for their financial decisions.

When you open any savings account, your bank or building society will lend your deposits to various companies. This has the benefit of helping to grow these companies which in turn increases profits. Ethical savings accounts mean you can be more selective about which companies your deposits are helping.

What counts as an ethical savings account?

There isn’t one understood version of what ‘ethical’ means in terms of an ethical savings account, because the type of company and industry you would be happy to support (and those you don’t want to support) is a personal choice.

For example, you may want to know that your deposits are being used to fund companies that are working to tackle climate change or those that are concerned with social responsibility. Conversely, you may want to avoid companies that use child labour or invest in fossil fuels.

While opening an ethical savings account can be a personal choice, a Sharia-compliant savings account has certain principles to follow according to Islamic law.

What does Sharia-compliant mean?

Sharia-compliant banks adhere to Islamic principles. These principles include:

  • Not charging interest on money borrowed from the bank
  • Not paying interest on savings accounts (see more below)
  • Not benefitting from restricted practices such as gambling, pornography, firearms, alcohol, and tobacco
  • Not making high-risk investments
  • Sharing profit and risk mutually between the bank and consumers

While Sharia-compliant banks don’t pay an annual equivalent rate of interest on your savings, they do pay what’s called the ‘Expected Profit Rate’ (EPR). You’ll see the EPR advertised as a percentage, making it easier to compare to the interest rates offered by traditional banks. The EPR is your share of the money that the bank makes investing your deposit. Because the profit that the bank makes can vary, so too can the EPR.

Please be aware that we will contact you in the unlikely event that an EPR changes on a Fixed Rate Bond. If you decide that you don’t want to continue with the new rate, all you need to do is contact our Customer Services Team to close your savings account and transfer your deposit and any profit you’ve earned to your Raisin UK Account.

Who can open a Sharia savings account?

There is no restriction in terms of religious belief on who can open a Sharia savings account, and many non-Muslims opening Sharia savings accounts do so because the principles are very closely connected with ethical banking.

Sharia savings accounts are open to all UK savers – you must simply meet the bank’s eligibility criteria as you would if you were applying for a traditional savings account.

Are Sharia-compliant savings accounts secure?

As long as the bank or building society you intend to save with has been authorised by the Financial Conduct Authority (FCA) or the Prudential Regulation Authority (PRA), your savings will be protected by the Financial Services Compensation Scheme (FSCS). This means that if the bank collapses, you would be entitled to compensation of up to £85,000 per person.

 

Sharia savings accounts from Gatehouse Bank

1 Year
Fixed Rate Bond

1.70% AER

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2 Year
Fixed Rate Bond

1.90% AER

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3 Year
Fixed Rate Bond

2.00% AER

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5 Year
Fixed Rate Bond

2.10% AER

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Sharia savings accounts from QIB

1 Year
Fixed Rate Bond

1.70% AER

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18 Month
Fixed Rate Bond

1.75% AER

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2 Year
Fixed Rate Bond

1.80% AER

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What to look for in an ethical savings account

Sharia-compliant savings accounts follow core principles, but if you want to open an ethical savings account, it’s not as clear cut. It’s important to research the banks or building societies as well as the companies they invest in to find out whether they match your ethical principles. Things to look for that are often important for people thinking of opening an ethical account include:

  1. Does the bank finance companies in the fossil fuel industry, and therefore contribute to climate change?
  2. What is the lending policy? Does the bank invest in companies that have an ethically positive impact?
  3. Does the bank even state who they lend to? It’s important that the bank is open and transparent about their investments, otherwise, you can’t be sure where your money is being deposited.
  4. Does the bank pay its senior staff excessively?
  5. Is it a mutual organisation, run for the benefit of its members? Savings accounts from mutual organisations can be a more ethical choice.
  6. Do they have a robust tax policy, or are they likely to avoid tax? Unfortunately, tax avoidance continues is not uncommon in the banking sector.

This article may contain information about partner banks, savings accounts, rates and bonus offers which were correct at the time of publication on 16th January 2020.