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I have been reading a few articles recently in regards to interests/profit accrued from saving accounts and found out that they are forbidden.

I currently have a current account that works as a saving account as well; I get a fixed percentage of interest and then 20% tax is deducted from the profit. I was about to open a few more accounts but after reading that it's not permitted in Islam, I will not close all my saving accounts soon.

However, I read that investments,stock options and similar options are permitted in Islam,provided that some requirements are fulfilled. Forgive me for asking questions that I have seen being asked here several times but I'm not familiar with these approaches and will really appreciate if someone could provide clear instruction as to what I could possibly do with my savings.

First of all, the reason why I opened a saving account is based on the simple idea of the value of my money; because of inflation the value of my money isn't the same which means that even if I keep the money in an account that doesn't return any interest/profit, I will be effectively losing money. £100 in my account today might only worth £80 next year because of inflation(this is how I understand it); so in order to protect the value of my money I decided to open a saving account which sort of absorbs the damage caused by the inflation. if this is not permitted then how can I safeguard my saving?

-Are CASH ISA accounts permitted ?

-Investing in companies(provided they are not forbidden companies) is permitted ? what are the things I should look for when investing in the market ?

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Receiving just enough to cover inflation is permitted. Since interest is defined as a predetermined positive return whereas if you just cover inflation your return is 0%.

Regarding investing in the stock market...

Proponents of classifying investing in the stock market as Maysir like to point out that the stock market is generally a secondary market. Meaning when you buy stock in IBM, the money isn’t going to IBM rather its going to some other trader. Therefore, there is little societal gain from trading in the stock market. Additionally, the stock market’s high degree of unpredictability makes it look even more like Maysir.

Not so fast.

For liquidity purposes, it is absolutely necessary for stock markets to exist. Without these markets, and the liquidity they provide investors, companies would find it very difficult to lure investors into buying their equity. Accordingly, the value created by stock markets is immense.

From a cost perspective, It’s possible to get addicted to day trading. In fact, many do. Especially in this day and age with technology making trading stocks ever more easy. Day trading is a great way to lose your shirt without the hassle of going to a casino. Being good enough at day trading to make decent money is the exception, not the rule. The SEC warns, “Day traders typically suffer severe financial losses in their first months of trading, and many never graduate to profit-making status.”

Alternatively, investing in the stock market with the intention of holding your investments for long periods, like what happens in most retirement plans, is historically a wise thing to do. Over the last 50 years, the S&P 500 (which represents a group of 500 stocks chosen because they are representative of the overall market) yielded average returns of 11% annually.

So, is investing in the stock market a form of Maysir?

Depends.

If you’re investing to make a quick buck it’s probably Maysir. The amount of value created from trying to “play the market” does not justify the risks entailed.

On the other hand, If you’re choosing companies because of their long-term prospects and you plan on holding your investments for a while, then it’s not Maysir. The probability of loss and tendency to cause addiction are reduced substantially using a buy-and-hold investment strategy.

Disclaimer: I am NOT giving you any type of investment advice.

And Allah knows best.

Read more here https://foundationsforislamiceconomics.wordpress.com/

  • Thank you for the reply. I have understood what you're saying in regards to stock investment; you're basically saying that if I invest in a manner that becomes more like a gamble(day trading, trying to predict the market etc) then it's not allowed, as opposed to long term investment, where the losses and profits are more predictable and therefore it makes it less of a gamble. In regards to your comment on inflation,some saving account give 3%,some 5%; how do I know whether the profit i'm getting from my saving isn't just covering inflation? – cpu2007 Apr 2 '15 at 12:46
  • Here's a handy online calculator to help find out inflation. inflationdata.com/Inflation/Inflation_Calculators/… if your period is less than a year just divide inflation by 12 and multiply by the number of months. Give everything above inflation to charity. Allah knows best. – Rakaan Kayali Apr 2 '15 at 14:52

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