Islamic Savings accounts

Savings accounts are designed specifically to meet the needs and requirements of customers who authorize the bank to invest their deposited money. Customers can deposit or withdraw funds at any time. The actual profits received are shared monthly at the ratio agreed upon.

This type of procedure is structured under Mudaraba (مضاربة) contract. Mudaraba is a partnership in profit whereby one party provides capital (rab-al-maal رب المال) and the other party provides work/expertise (mudarib المضارب). In this contract, the depositors act as rab-al-maal and the bank as mudarib. Therefore, a portion of the deposits would be invested in various projects and the profit shared on the basis of the agreement. In case of loss, the depositors (the rab-al-maal) would bear all the losses, but under most terms the bank will not.

An Islamic savings account is structured completely differently from a conventional savings account. An Islamic savings account is in fact an investment account, where the islamic bank invests the money deposited in the account using the mudaraba contract.

The fact that the holder of the savings account may lose their capital, indicates that Islamic savings accounts are very different products from the conventional savings accounts where deposits held in a conventional savings account would only be lost in the event of the bank itself going into liquidation (and even then most banks have such deposits insured by central bank schemes to a certain extent)