MSE News: New sharia account offers 1.6% easy-access savings - but should you get it?

18cc

Allah is wise. HMRC, on the other hand...

msnau

bail-in wrote: »

Link to Al Rayan bank offers: savings-account-comparison-table.pdf

The above link defines the mudarabah Shariah ruling which applies to the Al Rayan instant access savings account 1.6% EPR. Note in the mudarabah account types 100% of capital invested by the bank is at risk and all losses are passed on to the lenders customers, the depositors. That is a legal relationship, contract. However, depositors are protected by the promise of the FSCS up to £85,000 covered in case of receivership of the bank. Yep, just a promise. No enforceable legal relationship there between the depositor and the FSCS, the PRA and the BofE. It is doubtful our nationally indebted government banking protection scheme, the FSCS, could bail-out systemically important UK bank failures. Hence the 2016 bail-in toolkit rule. I like the Islamic Shariah morally linked banking rules re investment and risk, somewhat similar to the earlier Christian Church law. Shariah banks as a result weathered the 2008 crisis very well compared to other banks. Unlike many other countries, not from want of trying, including the USA, the UK have BofE ring fencing since 1st January 2019 to protect our deposits in the retail arm from losses in the investment arm of the bank. However, it only applies to a few of the retail banks determined by capital holdings, including: HSBC, Santander, Nat West, Barclays, Lloyds, RBS.

Thats really interesting - thank you for posting.

So does that mean all of the money in the Instant Savings Account is at risk? Potentially, you could lose 100% of your savings if Al Rayan's investments drop? If I recall, they dont mention customers deposits/savings being at risk? They only state the profit amount is at risk (ie might be less than their advertised perc).

Is this the same scheme for their Fixed Term Deposit account - is the initial deposit also at risk?

Malthusian

msnau wrote: »

So does that mean all of the money in the Instant Savings Account is at risk? Potentially, you could lose 100% of your savings if Al Rayan's investments drop?

No. It's the same as any other deposit account, you are 100% protected by the FSCS. (Unless you exceed the limit.)

The FSCS failing to pay out is an apocalypse scenario, i.e. there is no point worrying about it because there is nothing you can usefully do to protect against it (nothing financial anyway). If the FSCS has defaulted then we are all boned, no matter whether we put our money in Al Rayan, or in Lloyds, or stuffed it under the floorboards.

The fact that there is no enforceable legal relationship between the depositor and the FSCS is irrelevant, because even if there was one, there is no point enforcing a legal relationship against someone who doesn't have any money.

If I recall, they dont mention customers deposits/savings being at risk? They only state the profit amount is at risk (ie might be less than their advertised perc).

They are correct.

Uxb1

As we have seen before
If it is a small savings group that goes bust the FSCS closes it and pays outs the sum up to the limit.
If it is a larger group they tend to get someone else to take over the deposits and HMG runs down the liabilities into a bad bank.
If its a mega group - then they bail them out as having a major group going bust would affect the whole of the UK. In these cases a major failure would affect all sorts of corporate accounts with a large bank.
An un-bailed out failure would result in many supermarkets, petrol stations, airlines and even credit card companies current accounts ceasing to work with a catastrophic effect on the day to day business of the UK.

The bail in process arose out of I think Cyprus where the banks there lost large sums of depositors money on Greek bonds and many went bust.
In this case from my memory those with sums up to the guarantee limit were fully compensated by the Cyprus government while for any sums held above the compo limit (E100,000?) those depositors had a percentage of their funds above the limit wiped out - called a haircut.
Such a process is call in a bail in as large depositors take the hit rather than a bail-out where the taxpayers in general take the ht.

Laura42

Not normally stupid but not sure whether can fund the account immediately its opened or do I need to wait for welcome pack. When I applied online it gave me an account number, sortcode and another code comprising letters and numbers, are these the ones I should use for online bank transfer or do I need to wait for some other details in post before I can use them??

KTF

You can fund it using the account number and sort code as soon as it is opened.

The online banking details come in the post a few days later so you will not be able to check its arrived OK until you have those.

Laura42

Many thanks for explanation 👍

londoninvestor

Uxb1 wrote: »

If it is a small savings group that goes bust the FSCS closes it and pays outs the sum up to the limit.
If it is a larger group they tend to get someone else to take over the deposits and HMG runs down the liabilities into a bad bank.
If its a mega group - then they bail them out as having a major group going bust would affect the whole of the UK. In these cases a major failure would affect all sorts of corporate accounts with a large bank.

And if it's mega then the resourcing of the FSCS doesn't matter since - for just the reasons you state - it would be a direct action by the government.

neil324

Does the FSCS pay accrued 'Profit' and the deposit or only the deposit in the case of bank failure?

Uxb1

I've no idea of the specific answer - only that in the case of the Icelandic bank ICESAVE in 2008 the FSCS paid the accumulated interest due from the previous date that Icesave had last paid it up to the date of the actual failure only.