(F 182) We seek a fatwa regarding the permissibility or prohibition of the following matter: In conventional banking, the calculation of deposits is often tied to fixed interest rates. However, some accounts nowadays are linked to variable interest rates based on market conditions, and the interest rate can reach up to 4?. 1) Does the variable interest rate make it permissible for a Muslim to benefit from such bank accounts? 2) If the answer is “permissible (halal),” does the fact that the bank is American but not Islamic render it haram (forbidden) because the bank’s investments may involve prohibited activities like alcohol and others? It should be noted that it may be difficult to find a list of the bank’s investments that generate the banking interest. – International Institute of Islamic Studies

(F 182) We seek a fatwa regarding the permissibility or prohibition of the following matter: In conventional banking, the calculation of deposits is often tied to fixed interest rates. However, some accounts nowadays are linked to variable interest rates based on market conditions, and the interest rate can reach up to 4?. 1) Does the variable interest rate make it permissible for a Muslim to benefit from such bank accounts? 2) If the answer is “permissible (halal),” does the fact that the bank is American but not Islamic render it haram (forbidden) because the bank’s investments may involve prohibited activities like alcohol and others? It should be noted that it may be difficult to find a list of the bank’s investments that generate the banking interest.

The answer to the above is a branch related to the description of a bank deposit. If it is attached to a loan with the assumption that the financial institution guarantees and is obligated to return the principal value, then any increase over the original amount is considered prohibited usury (riba), whether the percentage is fixed or variable.
Similarly, if the bank deposit is associated with the concept of trust (amanah), because the default principle in trust is that it should be returned in the same form, not in value, unless the entrusted item is damaged due to the trustee’s actions, negligence, or ignorance. It is stated in the Journal of Legal Judgments (Mecelle) that: “Trust is not guaranteed, so if it is lost or disappears without any act or negligence on the part of the trustee, the trustee is not obliged to provide a guarantee.” Therefore, whoever is entrusted with a dollar should return a dollar, and whoever is entrusted with gold should return gold.
The difference between a loan and a trust lies in two aspects: guarantee and permission to benefit. These aspects are part of the loan but not of the trust.
Those who consider a bank deposit as a form of agency (wakalah) or partnership in profit-seeking (mudarabah) permit the increase over the principal amount. This is because a partner in mudarabah seeks to generate profit and growth, and the agent in a mudarabah seeks the same, with each entitled to a share of the earnings.
The correct view, in our opinion, is that a bank deposit is a new transaction that shares similarities with and differs from the four types mentioned earlier. It resembles a loan in terms of guaranteeing repayment but differs in that it occurs at the request of the depositor, not the receiver, unlike a loan. Additionally, it can be retrieved at any time, unlike a loan which may have a set term that cannot be expedited without the consent and approval of the borrower.
In this context, it shares characteristics with trust in that it can be retrieved at any time in the same form paid (we do not mean cash in the sense of specifying the exact cash, as currency is not identified by its specific individuality) – meaning a dollar if it was a dollar and gold if it was gold. It also bears some resemblance to profit-sharing (mudarabah) because the bank benefits from investing the deposits and generates earnings. However, it differs in that the burden of losses falls solely on the bank and does not affect the depositor.
It also contains an element of agency (wakalah) because it involves the permissible delegation of authority to manage what falls under the agency, which is the deposited money. However, it differs in terms of guarantee and the obligation to repay in-kind.
Therefore, current bank deposits in their present form were not known in classical jurisprudence, and we cannot categorize them under a single ruling. Instead, we make an effort to determine their ruling based on their characteristics. Given that they encompass elements of profit-sharing and agency, it is permissible to accept the increase over the principal amount on the basis of generating profit, whether the rates are variable or fixed, as long as these rates are expressed as percentages rather than specific amounts.
There is nothing in Islamic jurisprudence that prohibits specifying a fixed percentage for profit and increase. In fact, it may be in the welfare of someone who relies on the increase to meet their essential needs, so they do not have to fluctuate with changes in the percentage.
Fatwa by Dr. Khālid Naṣr