Islamic Bank of Britain tops best buy savings with 4.5% bond

Friday, 02 October 2009 10:37

The Islamic Bank of Britain (IBB) is launching a two-year savings fix at 4.50 per cent.

The bond stands out about the rest of the competition and forms part of a range of 3, 6, 12, 18 or 24 month fixes.

The 24-month Fixed-Term Deposit Account offers 4.5 per cent and the 18-month Fixed-Term Deposit Account offers 4.0 per cent.

On the two-year market, the product stands out beating many three-year fixed rate savings bonds as well.

Halifax has a two-year fixed rate saver at 4.15 per cent, while AA has a savings bond at 4.35 per cent, the previous best two-year fix according Moneyfacts.co.uk, and Chelsea Building Society has 4.30 per cent.

However, as the account is Sharia'a compliant, it cannot provide interest in the standard way a savings bond would.

Instead, IBB acts as the customer's agent by taking their cash deposit and investing it in Sharia'a compliant activities - avoiding areas such as gambling, alcohol or tobacco - for an agreed target profit rate over a fixed term.

This means profits cannot be guaranteed in the same way interest is on a savings bond.

While the initial investment is guaranteed, there is a degree of uncertainty over whether the profit target will be met.

However, IBB does have a reasonably sound track record - even through the financial crisis - of matching its targets.

Steven Amos at IBB said: "Over the last five years, we has only missed the target three times on one account - on that occasion by only 0.25 per cent.

"Once we have paid out in excess."

He added the funds are invested in the metals on the commodity markets and to fund the bank's home purchase plans - a way similar to building societies using savings to fund mortgage lending although within Sharia'a rules.

Mr Amos added the ethical nature of the investments attract both Muslims and non-Muslims.

He went on to explain IBB was hoping to produce further savings products to head best buy tables in future.

The minimum investment is £5,000 and the profits - taking the place of interest - is calculated and paid quarterly, or savers can retain profits to be invested with the deposit amount.

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