Al Rayan Bank announces top new savings rates

Sharia law-based Al Rayan Bank has just hiked the rates on a number of its fixed-rate savings accounts. Here's a more in-depth look at this challenger bank, including some of the other products on offer.

Who is Al Rayan Bank?

Most people probably haven’t heard of Al Rayan Bank but, with 70,000 UK customers and a rapidly expanding business, that could soon change.

It has just unveiled a raft of table-topping savings rates and was recently named the UK’s best fixed savings account provider by personal finance data firm Moneyfacts. 

It is a subsidiary of Qatar-based Islamic bank Masraf Al Rayan that has operated in the UK since 2004. The bank specialises in Islamic finance, but estimates that 94% of its fixed-term deposit savings customers are not Muslim.

Al Rayan is the UK’s largest Sharia-compliant bank. This means it cannot do business with, or invest in, businesses that are considered unlawful under Sharia rules.

This includes companies that are involved in gambling, tobacco, pornography, arms and alcohol.

These restrictions mean Al Rayan can appeal to ethical investors.

Along with savings, the bank also offers current accounts, mortgages and buy-to-let mortgages.

How does Islamic finance work?

As the bank operates Islamic finance, its mortgages – known as Home Purchase Plans – work a little differently.

You pay the bank rent rather than interest while you repay your loan as Sharia law doesn’t allow a Muslim to lend money and make a profit from that loan. You cannot make money from money.

This also means the savings accounts are a little different.

You don’t technically earn interest on your savings – again you cannot make money from money. Instead, the bank embarks on Sharia-compliant trading to generate a profit that is then paid to you.

That means that savings accounts have ‘expected profits’ rather than interest rates, and explains why their accounts are called 'fixed term deposits'.

How do its savings rates compare?

Following this morning's (22 June) annoncement, Al Rayan tops the one- and two-year accounts.

At present, it is offering an ‘expected rate’ of 2.02% on its 12-month bond.

Below you can see how it compares on two year accounts.

In case you were interested in locking your money away for longer, it is second-best in the three-year account category with a rate of 2.16%.

This can be beaten by the 2.2% offered on the NS&I Savings Bond, but it's worth noting that only allows deposits of up to £3,000.

Are your savings safe?

Savings held with Al Rayan Bank are covered by the Financial Services Compensation Scheme (FSCS).

This means that if the bank were to go bust the FSCS would reimburse up to £85,000 per account or £170,000 for joint accounts.

Want to keep looking? Compare more savings accounts with loveMONEY right now

How do its mortgages compare?

While its savings products are competitive, Al Rayan’s Home Purchase Plans are far more expensive than the best-buy mortgages.

It currently offers deals with 'interest rates' ranging between 2.44% and 2.94%; by contrast, there are a handful of mortgage lenders out there who will let you borrow at less than 2%, provided you own a sizeable chunk of your home already.

Find cheaper deals at the loveMONEY mortgage comparison centre