Review of Al Rayan Bank 24 Month Fixed Term Deposit

Written by Karen Bryan

al rayan bank

Update 25 May 2016 – The expected profit rate for new holders of the Al Rayan Bank 24 Month Fixed Term Deposit account has dropped to 2.02%.

Update 8 April 2016  – The expected profit rate for new holders of the Al Rayan Bank 24 Month Fixed Term Deposit account has dropped to 2.42%.

The Al Rayan Bank 24 Month Fixed Term Deposit account, paying an expected profit rate of 2.75% (on 25 January 2016), caught my eye. This was around 0.5% more than the interest being paid on other two-year accounts.

You will notice above that I didn’t say an interest rate of 2.75%, but an expected profit rate. This is because the Al Rayan Bank offers Sharia compliant accounts, meaning that the rate is not guaranteed. In Islamic law, the payment of interest is forbidden. Instead, savers earn a share of the profit derived from their deposit.

If the bank judges that it will not be able to deliver on its expected profit rate, they will contact savers and offer them the option to withdraw their deposit, with profit earned until that time. Evidently, this has never happened since the foundation of the bank in 2004.

The bank will not invest in businesses operating in gambling, pornography, speculation or tobacco, as these activities are against Islamic law. This makes the bank’s accounts appealing to ethical savers.

There is a minimum deposit of £1,000 for the 24 Month Fixed Term Deposit account. Deposits of up to £75,000 with Al Rayan Bank are covered under the Financial Services Compensation Scheme (FSCS).

As a non-Muslim, I had to ask myself if I was willing to take the risk of the return on my deposit not being guaranteed, in the hope a higher return. I concluded that I would take the risk, as at least my deposit was covered by the FSCS, unlike money invested in peer-to-peer lending.

I decided to open an Al Rayan Bank Two Year Fixed Term Deposit account. I was able to do this online. But I had to download and print an application form and a form to request online banking, and post these back to the bank.

There is an option to receive profit quarterly, which reduces the expected profit rate to 2.75%.

I made my deposit by bank transfer, sending £10 first to check that I had correct bank details. Once I confirmed receipt of the £10, I transferred the rest of the cash.

A couple of days later I received written confirmation of my deposit with Al Rayan Bank.