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Published: 01/04/2019

Savers searching for a safe home for their cash may have noticed a change in the companies offering the top deals over the past decade. No longer do high street names dominate, but instead, challenger banks have come to the foreground – and many market-leading positions are now being held by Islamic banks.

This is particularly the case in certain sectors of the market, with the one and two-year fixed bond sectors gaining particular attention. Indeed, the latest analysis by Moneyfacts.co.uk shows that the current Best Buy deals within each of these two sectors are dominated by Islamic banks offering market-leading returns. This, in turn, has led to more competition from other brands, many of whom are looking to maintain a prominent position within the charts after losing ground over the years.

The tables below highlight how the two sectors have changed in recent years, and although we're still a long way from the heady heights of a decade ago, rates more recently have certainly begun to improve – largely thanks to challenger and Islamic banks.

Top one-year fixed bonds


April 2009


April 2014


Today


ICICI Bank UK
– 3.90%


Islamic Bank of Britain – 1.90%*

 


Bank of Cyprus UK
– 3.70%


Britannia – 1.71%


Al Rayan Bank – 2.15%*


FirstSave
– 3.60%


Metro Bank – 1.70%

QIB (UK) (through Raisin UK) – 2.05%*


SAGA – 3.50%


State Bank of India – 1.70%

 


United National Bank
– 3.50%


Kent Reliance – 1.65%


Shawbrook Bank – 1.97%


Halifax
– 3.40%


Shawbrook Bank – 1.65%


Close Brothers Savings – 1.96%

 

Top two-year fixed bonds


April 2009


April 2014


Today


Close Brothers
– 4.30%


Islamic Bank of Britain – 2.30%*

Gatehouse Bank – 2.45%*


ICICI Bank UK
– 4.18%


State Bank of India – 2.10%


Al Rayan Bank – 2.40%*


West Brom Building Society
– 4.05%


Shawbrook Bank – 2.10%

BLME – 2.35%*


Ruffler Bank
–3.84%


United Trust Bank – 2.05%


Union Bank of India (UK) Ltd – 2.28%


Bank of Cyprus UK
– 3.80%


Britannia – 2.05%


PCF Bank – 2.26%


Derbyshire Building Society
– 3.75%


ICICI Bank UK – 2.05%

Aldermore – 2.25%

Both tables: Top bonds at £10,000 gross. *Sharia'a compliant, pays an expected profit rate. Bank of Cyprus UK rebranded to Cynergy Bank, United National Bank rebranded to United Bank UK, Islamic Bank of Britain rebranded to Al Rayan Bank. Source: Moneyfacts.co.uk

Get the top savings returns

"Savers who look away from Islamic banks will be missing out on the best returns on their cash," said Rachel Springall, finance expert at Moneyfacts.co.uk. "In addition, savers who do choose a Sharia'a compliant account will be investing ethically thanks to steadfast Islamic law principles. There's no need to follow the religion to apply for a savings account with an Islamic bank, either; in fact, an estimate by Gatehouse Bank revealed that 70% of their savings customers are non-Muslim."

There is one key thing to remember with an Islamic bank, however – they don't pay a set interest rate. Islam teaches that money has no intrinsic value, so individuals cannot be charged or earn interest, but they do pay an expected profit rate – and this can be comparable to, and in many cases higher than, the interest offered on other savings accounts.

This in itself means savers would be wise to consider these deals, said Rachel. "In fact, savers can get an expected profit rate of 2% or more on a one-year fixed bond with Islamic banks, but not the equivalent in interest from other mainstream brands. It's also worth knowing that Gatehouse Bank stated it has never failed to pay its expected profit rate."

It's worth pointing out that all the Islamic banks listed in the Best Buys are fully covered by the Financial Services Compensation Scheme and regulated by the Financial Conduct Authority, so savers can be assured that, were an Islamic bank to default, they would have the same level of financial protection as with any other provider under the scheme.

Changing times

Islamic banks have certainly come to the foreground in recent years, with there now being far more available in the UK savings market. "Currently, Al Rayan Bank, Bank of London and The Middle East (BLME), Gatehouse Bank and QIB (UK) – the latter through Raisin UK – sit as the top four best rates on the market for one-year fixed rate bonds, whereas if we look back to just five years ago, only Islamic Bank of Britain (now branded as Al Rayan Bank) was in the market," said Rachel. "Further still, 10 years ago there wasn't one Islamic bank offering deals in this sector.

"Clearly, the rise of the Islamic banks and subsequent rate improvement in the savings market should be celebrated, and as competition intensifies with challenger brands increasing rates to get a more prominent market position, it's good news for savers all round."

So, is it time to make the most of the changing market and take the plunge with an Islamic bank? Check out the best fixed rate bonds and you'll soon see why these unique challengers are worth considering.

Disclaimer

Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

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