An Islamic fixed deposit works based on Shariah policies for banking. Islamic banking calls the interest earned over the fixed deposit as profit. Banks usually follow the 4 concepts under which Islamic fixed deposits work which are given below:

Mudharabah: The policy has two parties involved in the agreement. One party offers money to the other party for a business investment. The two parties agree on a percentage and then share the profit earned from this investment. In the case of fixed deposit with an Islamic bank, you are the provider of funds for the bank to continue with the business and earn profit. The earned profit is shared with you based on a pre-determined percentage.

Wadiah: In this policy, the bank is considered to be a trusted place to keep the funds. In return the bank offers gifts to the customers in the name of “Hibah”, which denotes the profit earned by the bank from the investment the customer had made. The interest earned in a Conventional banking scheme is equivalent to the Hibah given in the Islamic banking scheme. However, giving Hibah is not always sure as it solely depends on the bank’s decision.

Murabahah: Murabahah is different from the above two concepts as it insists on one party selling goods to the other at an agreed upon profit level. In accordance with fixed deposit, the customer invests some money on to the fixed deposit account and the bank utilises the funds to deal with Shariah-compliant commodities. The bank then returns the original investment the customer made along with the profit. This return will be made at a later time.

Tawarruq: Tawarruq is an instrument used to quickly fetch money. The actual concept goes like this: a party buys an asset from another party at a specified price that is to be paid at a later date and sells the asset immediately. This is to instantly get back the cost of the asset.

Depending on which of the above concepts are put to use, different banks function in different ways when it comes to fixed deposits. You can enquire with the bank as to which principle is used before investing in the fixed deposit scheme.

The minimum age to open a fixed deposit account is 18 years. You can invest an amount as low as RM1,000 to initiate the fixed deposit process. You can choose a deposit tenure between one month and 5 years. The profit for the fixed deposit may be paid once a month, once in 6 months, upfront or at the end of the deposit tenure. For short term deposits, the profit is paid on maturity. You have to submit all the necessary documents to get the approval from the bank. A copy of NRIC/MyKad to prove your identity and a copy of your Passport as the proof of your identity if you are a foreigner.

Some banks will allow for partial withdrawal or premature termination of the deposit. based on the amount of time you have maintained the deposit, you would be entitled to half of the profit or no profit at all.