Savings Account: In this session, We will learn what a savings account is; The features of a savings account; Understand how Islamic savings accounts are structured; And see the difference between a conventional and an Islamic savings account. What is a savings account? A savings account is a basic type of bank account that allows the customer to deposit money, keep it safe and withdraw funds, whilst earning a modest return on their savings. Savings accounts are offered by most banks, credit unions and other financial institutions. Unlike current accounts, savings accounts are closer to a form of investment than a transactional account. The two key features of the savings account are: Safety, as savings account holds funds in a safe place and offers easy access to cash on demand. Customers can withdraw cash at an ATM or with their banks cashiers. They can also transfer funds to their current account to pay by check, debit card or an electronic funds transfer. Growth, savings accounts pay a return on deposits, as a result, the bank will make small additions to the account, typically every month. The rate depends on economic conditions among other factors. Islamic Savings Account: Islamic savings accounts offered by Islamic banks allow customers to not only protect their funds but additionally earn profit on their savings. Islamic banks use the deposits of customers to undertake shariah-compliant investments and activities with the intention to generate returns. Some Islamic banks use the funds to finance other products offered by the bank, whilst others invest the funds in low risk Shariah-compliant investments. Savings accounts are structured using Wakalah. Wakalah is an agency contract where the account holder (Principal) appoints an Islamic finance institution (Agent) to carry out investment activities. Let's see this example, an Islamic bank offers a Wakalah savings account as follows: The customer opens a savings account with an Islamic bank. Islamic bank acts as an investment agent and provides an indicative profit rate. The bank invest the fund in any Shariah-compliant project. The profit generated from the investment goes to the customer which can be equal or less than the expected profit. Any excess profit goes to the bank as performance incentive and bank can charge fees for its services. Any financial loss is solely borne by the customer. Shariah Ruling: According to Bank Negara Malaysia, Bank Negara Malaysia standard on Wakalah states: A Wakalah contract may be entered into for the purpose of investment (Wakalah be al-Istithmar). The agent may not guarantee the capital or return on the investment in any form. The principal may agree to the agent retaining all or part of the excess profit as a performance fee, if the actual profit is higher than the agreed expected profit. In the event that the actual profit is lower than the agreed expected profit, the agent may give Hibah to the principal to compensate for the difference. Conventional Savings Accounts: Conventional banks which offer savings accounts typically pay interest. Hence, they are non Shariah-compliant accounts. Module Summary: In this session, we looked at the concept of savings accounts. We learned that the Islamic banks offer savings accounts which primarily help customers to save and grow their funds. We covered the Shariah contracts typically used by Islamic banks for savings account facility. Lastly, we mentioned that conventional savings accounts pay interest and are therefore not Shariah-compliant.