Why price comparison sites still aren’t giving you the full picture

Searching out Shariah-compliant savings could be worth the investment

EPR or APR? It's worth closer comparison. (Getty Images/iStockphoto)

Price comparison sites. Designed as the ultimate weapon in our battle to make the most of our money, they have been courting controversy for years.

The criticism has been fairly fundamental – that consumers weren’t getting a clear, unbiased picture of the best deals out there at the time they plugged in their requirements - usually for commercial reasons.

The crackdown on misleading the unwitting public has at least tried to make sure that, for example, you know that a particular mortgage deal is top of your results because there’s a promotional deal involved.

But elsewhere it seems the notion of fair comparison itself is keeping us from maxing our cash.

Apples and pears

Take savings accounts, for example. A new study of the inclusion of Shariah-compliant savings products suggests the majority of price comparison sites simply don’t list them alongside standard offers.

Research from - inevitably - a Shariah-compliant bank, has found that of the 15 UK websites that offer best buy information, only seven present them alongside mainstream products. That’s despite regularly beating the rewards of a standard savings account.

It’s the reward bit that’s the sticking point. Shariah financial products are those that adhere to the moral and legal code set out in the Qur’an and Sunnah. The fundamental difference with a Shariah savings account is that they don’t pay interest because Muslims can’t benefit from lending or borrowing money.

Instead, the profits made from investing in companies is shared out between those who have contributed the cash – the savers. The added bonus for many is that these are typically ethical investments as they can’t be involved in any activity contrary to Islamic teaching, such as tobacco production or gambling.

“It is vital that comparison websites, which give the impression they are presenting savers with the best rates on the market, live up to that expectation by including Shariah-compliant accounts,” argues Charles Haresnape, CEO of Gatehouse Bank.

“These accounts frequently offer some of the best, if not the best, rates and are growing rapidly in popularity among all kinds of customers.

“These sites are designed to help consumers, who shouldn’t have to go hunting for the best rates and should be encouraged to consider ethical, Shariah-compliant banking as an alternative to the high street.

“Otherwise savers are left ‘rates blind’ and wrongly assume they are aware of all their options.”

Blind to better rewards or not, the truth is it’s impossible to do a straightforward like-for-like comparison between Shariah and non-Shariah products because of those interest earning considerations.

The profit sharing mechanism is known as the Expected Profit Rate (EPR) which is similar to an interest rate but isn’t guaranteed like a traditional fixed rate bond, for example. That, argues Anna Bowes of Savings Champion.co.uk, which lists Shariah accounts separately to mainstream savings accounts, is the real issue.

“We recommend Shariah accounts a great deal – BLME and Al Rayan in particular, and both have excellent customer service - as well as good rates,” She says. “Once our customers understand the difference they are usually happy to proceed but there are others who are not as they want an absolute guarantee when they are looking to tie up their money for a fixed term.

“It’s important to specify that these accounts are different, albeit similar. Shariah accounts are not guaranteed, therefore are not fixed rate bonds. It’s important for savers to recognise the difference.

“But while the accounts don’t pay interest they are definitely savings accounts, which means that we are more than happy to include them on our site. I think it’s important for these providers and accounts to get more exposure so that savers can include them in their savings portfolios.”

Expecting profit

And they’re worth that inclusion. The leading one-year fixed rate bond with a mainstream interest paying function currently comes in at 1.86 per cent from Paragon. BLME expects its one-year term product to return 1.95 per cent in profits.

Across other fixed-rate products, other Shariah products stack up well too, regardless of their ethical stance. The best three year fixed-rate product comes in at 2.31 per cent interest right now from RCI Bank. The equivalent Shariah-compliant product from BLME anticipates a profit of 2.30 per cent.

Meanwhile, savers were hit with a double whammy recently when already low variable savings rates were cut on the expectation of a base rate rise in early April. Then, a Moneyfacts report has found, when those expectations fell dramatically some providers cut fixed rates or withdrew them altogether.