Calculating Zakah on bank certificate with a compound interest rate
Fatwa No: 88340

  • Fatwa Date:22-7-2004 - Jumaadaa Al-Aakhir 5, 1425
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I have bought a certificate from a bank in Egypt since January 1998 with total amount of 50,000 Egyptian pounds. It has 12.5% compound annual interest rate. It reaches now to about 100,000 Egyptian pounds.
I want to figure out how much money as Zakah should I pay right now (i.e. after 6.5 years from the buying date) and do not forget it has a compound interest.


All perfect praise be to Allaah, The Lord of the Worlds. I testify that there is none worthy of worship except Allaah, and that Muhammad, sallallaahu 'alyhi wa sallam, is His slave and Messenger.

First and foremost, we wish to draw the attention of the questioner to the fact that Allaah has forbidden Ribaa (interest and usury) and declared a war on whoever consumes it, as he repelled those who partake in this from His Mercy, unless they repent. Allaah Says (what means): {Allaah has permitted trading and forbidden Ribaa.} [Quran 2:275]

Allaah also says (what means): {O you who believe, fear Allaah and give up what remains (due to you) from Ribaa (from now onward), if you are (really) believers. And if you do not do it, then take a notice of war from Allaah and His Messenger, but if you repent, you shall have your capital sums. Deal not unjustly (by asking more than your capital sums), and you shall not be dealt with unjustly (by receiving less than your capital sums).} [Quran 2:278-279]

In addition to this, the Prophet, sallallaahu ‘alayhi wa sallam , said: "Allaah has cursed the one who consumes Ribaa, the one who gives it to others, the one who writes it down and the one who witnesses it.” He, sallallaahu ‘alayhi wa sallam, added: "All of them are equal in sin." [Muslim]

Therefore, it is not permissible to deal with Ribaa in any of its forms - as mentioned above.

Buying investment certificates from banks that deal with Riba (interest and/or usury) is purely dealing with Ribaa. All Fiqh (Islamic jurisprudence) congresses that have looked into investment certificates have determined that it (i.e., its principle) is forbidden Ribaa and it is simply a loan contract with interest. It is the same form as money saved in banks but this money is used in investment after possessing it with a guarantee of paying back the capital money and any interest on it. This is exactly the loan with interest which was widespread before Islam.

The person who falls into such transactions should do the following:

1. Repent to Allah, the Most High, as dealing with Ribaa is a major sin and is among the seven grave destructive sins and the Prophet, sallallaahu ‘alayhi wa sallam, said: "Avoid the seven grave and destructive sins.” His Companions  may  Allaah  be  pleased  with  them asked, "O, prophet of Allah, what are they?” He replied: "Associating partners with Allaah (Shirk), magic, killing a person whom Allaah has forbidden to kill except for a just cause, consuming Ribaa, consuming the wealth of the poor, running away from the battlefield when fighting the Kuffar (non-Muslims), and accusing chaste women who would never think of anything touching their chastity and are good believers." [Al-Bukhari, Muslim and others]

2. Withdraw his money from these banks who deal with usury and interest, as these banks are damaging the Muslim nation, except if he is obliged to do so. For instance, if he cannot find an Islamic bank in his country and fears his money will be stolen or lost, and so on, he has to open a current account without interest. But if he is not obliged to put his money in such a bank, then it is not permissible for him to do so, because so doing, he is helping the bank in interest-based finance. Allaah says (what means): {Help one another in virtue, righteousness and piety, but do not help one another in sin and transgression. And fear Allaah. Indeed, Allaah is Severe in Punishment.} [Quran 5:2]

3. Get rid of the Ribaa money. He should not spend it for his own benefit or on whomever he has to spend on, but he should spend it in the public interest, or on the poor and needy people and simply for the purpose of getting rid of it, not for getting closer to Allaah. As Allaah is good and only accepts that which is good.

With regard to paying Zakah [obligatory charity] on these investment certificates, you are obliged only to pay the Zakah on your capital money, which is 50,000 EP. You have to pay the Zakah on every previous year during which you did not pay the Zakah. You have to pay 2.5% on each year. However, there is no Zakah on the profits that you made through these certificates, as they are pure Haraam (i.e. impermissible) and should not be possessed but should be disposed of in charitable activities as already stated.

Note: if you pay the yearly Zakah on the 50,000 EP, then for the next year you do not have to pay the Zakah on the full 50,000 but should pay the Zakah on 48.750(which is 50,000 – 2.5%)  which will be 1218.75 and you should do the same for the following years. That is to say, you do not have to take into consideration the Zakah money paid in the previous year when calculating for the next year.

Allaah Knows best.

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