Are Savings Accounts Haram in Islam?


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Savings accounts from conventional banks can be considered haram because they pay you back with interest. However, savings accounts in Islamic banks are halal. This is because Conventional savings account pay interest to the customer whereas an Islamic savings account works on profit sharing. 

In the times of digital currency, cryptocurrency, and online banking, every Muslim is struggling to avoid haram on their hard-earned savings. For non-muslims, a savings account is a risk-free and profitable way of making money. However, as Muslims, we have to make hard choices and make money the Shariah way. 

In this article, we will discuss if savings accounts are haram in Islam and review fatwas on savings accounts being haram or halal.

Table of Contents:

The Concepts of Riba, Non-Halal Investments, Gharar and Maysir
Difference between Islamic and Conventional Savings Account
Why are Savings Accounts Haram?
Fatwa about Savings Account being Haram or Halal
What Can I Do with Interest Gained in my Savings Account?
How does Islamic Savings Account Works?
What Can I Do with Interest Gained in my Savings Account?

The Concepts of Riba, Non-Halal Investments, Gharar and Maysir

Before diving further, you need to understand three financial concepts in Islam:

Riba: transaction based on interest. For example, lending (or borrowing) money on which interest is incurred. 

Gharar and Maysir: transactions that are risky and involve an element of uncertainty, randomness, or speculations. For example, futures and options contracts (Gharar) or gambling (Maysir).

Non-haram Investments: investing in businesses that engage in non-Islamic activities. For example, gambling, pornography, alcohol, companies that produce recreational THC weed etc.

Difference between Islamic and Conventional Savings Account

The main difference between Islamic and conventional savings account lies in the fact that the Islamic or sharia account is based on Sharia Law practices. 

Conventional savings account pay interest to the customer whereas an Islamic savings account works on profit sharing. 

In a conventional savings account, the customer gains a fixed amount of interest based on the amount deposited in the account. Islamic or Sharia-compliant savings accounts do not promise a fixed return. Instead, they share the profits they earned with the customer.

Why are Savings Accounts Haram?

In Islam, lending money to earn interest is haram. An Islamic society is based on brotherhood and Muslims are not allowed to make an interest in their brother’s pain. According to Sahih Muslim 2586, Grade Sahih:

The Muslims are like a single man. If the eye is afflicted, then the whole body is afflicted. If the head is afflicted, then the whole body is afflicted.

Sahih Muslim 2586, Grade Sahih (source)

What is Mentioned In The Quran About Muslims Earning Interest

Allah says further in the Holy Quran Chapter 4 Surah Nisa verse 161: 

That they took riba, although they were forbidden.  And that they devoured men’s substance wrongfully. We have prepared for those among them who reject faith a grievous punishment (of Hell-Fire)!

Quran – Yusuf Ali Translation (source)

Fatwa about Savings Account being Haram or Halal

Regarding savings accounts, Sheikh Faraz Rabbani was asked:

Is it permissible to open a savings account with a bank that provides interest? I have no intention of using the interest whatsoever; I would just like to deposit my money in a safe place.

Seeker’s Guidance (source)

To which he replied:

No, it would not be permitted to open a savings account which engages with interest (riba), as Mufti Taqi Usmani explains in his Fiqh al-Buyu` [2.1063], because interest is categorically unlawful by the text of the Qur’an itself.

Seeker’s Guidance (source)

Many other fatwas by scholars such as Sheikh Muhammad Salih al-Munajjid (source) and the Fatwa team on Islamweb also (source) also stated that savings accounts are haram and so is benefiting from the interest.

What Can I Do with Interest Gained in my Savings Account?

For a Muslim, it’s not permissible to benefit from the interest gained through a saving account. That includes paying the bank’s fee or any charges with the interest (source). If the bank insists on the account holder taking the interest, then they should give get rid of it by giving it away to the charity. (source)

How does Islamic Savings Account Works?

An Islamic savings account works by paying savers or depositors an expected profit rate. It comes out of the profit that the bank gains by making halal investments and is not fixed, nor guaranteed. Since the return on an Islamic savings account is not guaranteed, you may not even receive anything if the investment does not perform well for the bank. (source)

On most occasions, Islamic savings account perform well, and the depositors earn a profit. However, according to the Sharia principles, the investors share both the profit and the losses. If the bank’s investment doesn’t work and faces a loss, then the depositor’s capital should also share the loss. This means that there’s always some risk involved in an Islamic savings account. 

Most banks give depositors the option to withdraw funds before the end of the term if there’s a chance that the expected profit rate will not be met. Although, on most occasions, banks make a profit and sometimes make more than the expected profit rate, which they share with the investors (depositor). 

Check out our recent post if you’re curious about whether a Muslim can work in a bank!

Final Thoughts

Muslims avoid interest over deposits because it leads to social inequality and injustice, which goes against everything that Islam stands for. In a shariah-compliant Islamic savings account, Muslims have a way of keeping their money safe, withdraw the deposit at any point, and share profits with the bank. 

At the end of the day, the important thing is to remember that Allah is the sole provider. If a person gives up something for Allah, they will be blessed and reward for their deed in this world and thereafter.

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