Should you switch to a Sharia account? 

Should you open a Sharia savings account?

So here's a conundrum: you can currently get higher returns by investing in a Sharia savingsaccount that can't pay interest because it conflicts with Islamic law.

We've written a five-minute guide to Sharia accounts, explaining how they work and highlighting some of the best deals available at the moment.

How do Sharia accounts work?

The Sharia Law set out in the Quran forbids Muslims from earning or paying interest, which has traditionally made it difficult for British Muslims to take advantage of banking products such as mortgages and savings accounts.

The Islamic law also requires there to be an element of shared risk in the growth of money, which conflicts with standard savings accounts' lack of risk.

However, a growing number of banks now offer Sharia compliant savings accounts in the UK.

They do this by paying a profit rate, rather than an interest rate, and by financing this profit rate by investing savers' money - while avoiding "unethical" sectors such as tobacco, alcohol and gambling.

If the expected profit is not achieved, savers could receive a lower return. And if the bank's investments make a loss, this could involve getting back less money than they put in.

What returns are Sharia accounts offering?

Bank of London and the Middle East (BLME) is the largest Islamic bank in Europe. It is currently leading the market across one, two, three and five year fixed-rate accounts.

On five-year bonds, for example, BLME is paying 2.50%, putting it comfortably ahead of nearest rivals Ikano Bank at 2.46% and Paragon Bank at 2.45%. You will need at least £25,000 to benefit, though.

If you don't have that much in savings to place, check out Al Rayan Bank, which is also offering highly competitive rates on fixed-rate bonds for savers with smaller amounts to invest.

Its deals include 1.91% over 18 months, and 1.86% over 12 months, both with a minimum deposit requirement of just £1,000.

Is a Sharia account for me?

Sharia accounts providing good rates of return can be a great option, whatever your religious beliefs - particularly if you are looking for a fixed rate of a return.

The high rates available are the main advantage of investing in an account of this kind at the moment, although many people also like the peace of mind of knowing their money is being invested ethically.

Downsides include that you are not guaranteed to get the advertised rate, and that you could in extreme circumstances get back less than you invest.

However, rates are generally achieved and most providers will allow you to withdraw your money early if the profit rate is likely to be missed.

Anna Bowes of SavingsChampion.co.uk said: "Some of the very best rates on the market can be found among Sharia accounts, and while there are key differences to be aware of, to dismiss them out of hand could mean that savers miss out on precious returns."

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