Working in the financial industry for over 30 years, Rachel Thrussell is the leading independent expert on UK savings products. Her views are constantly in demand from both the industry and the press.
I’m aware that the Financial Services Compensation Scheme (FSCS) covers deposits of up to £85,000, including interest, but I was wondering how this applies to banks such as Al Rayan that operate according to Sharia’a principles and pay expected profit rather than interest. Would the FSCS cover this ‘profit’ in the event of such a bank failing?
The FSCS offers financial protection in the event of a bank or building society failing. Under current rules, £85,000 is covered per person, per banking licence, which means that if you held no more than this amount with any provider, you’d be guaranteed to get your full balance returned to you if a bank went bust. This includes your initial deposit, as well as any accrued interest, provided the full amount doesn’t exceed the £85,000 limit.
This applies to banks operating under Islamic finance principles as well, whereby an expected profit rate is paid rather than interest. At its most basic of levels, the FSCS protection limit doesn’t differentiate between the initial savings pot and the interest/profit – provided the total amount is within the limit, everything’s covered. So, yes, the FSCS would cover any profit accrued in the event of a Sharia’a-compliant bank failing, but those savers with high balances would be wise to ensure that any interest or profit earned doesn’t send them over the limit.
|1 Year Fixed Rate Bond||0.78%|
|2 Year Fixed Rate Bond||0.86%|
|3 Year Fixed Rate Bond||1.08%|
|4 Year Fixed Rate Bond||1.26%|
|5 Year Fixed Rate Bond||1.27%|
|12 October 2021|
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