Halal Banking- where to keep emergency fund? CD, Halal savings Accounts, Fair bank

Sorry, couldnt find a post on this and hoped for the groups help. Where do you keep your emergency fund? Any halal banks with CD or high yield savings accounts?

Anyone with experience with halal digital bank Fair (https://www.bankwithfair.com)? They have a Wealth Savings account that advertises a 4% dividend rate. Anyone with knowledge/ experience with this?

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Assalaamu Alykum Umer! Welcome to the Zoya Community forum. That’s a great question. I’m in Canada so I don’t have access to Fair. I imagine you’re in the US?

Personally, most of my emergency and short-term savings are in regular savings accounts with traditional banks. Having access to the money whenever I need it is a big reason for that. Whatever I don’t need to have access to is invested.

Whenever I see accounts that offer liquidity and higher than normal dividend rates and returns, I’m always wondering where are they making their money from. Big reason why I stayed away from a bunch of the cyrpto stuff personally.

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Thanks for the reply! Yes I am US based, sorry shouldve specified. Totally agree with all you said, which is why is why I wondered what the catch is with Fair. But Fair advertizes itself as a halal/ shariah compliant bank (Fair Launches First-Ever Halal-Certified Neobank and Wealth Building Platform in U.S.)

The money in this account (Wealth Building) is supposed to be liquid and accessible just like a savings account, so the 4% (which is a dividend from their investment arm, and so I assume you share in the losses too to keep it halal, and get a 1099 US tax form) is definitely higher than Ive seen anywhere- even for CDs, and hence wanted to see what the experts thought

Thanks for posting. I wasn’t previously aware of that. I was aware of University Bank in Michigan having an Islamic savings option, but there was a stretch of time a few years back when they stopped providing dividends and I don’t know if or when they started paying it again and how much if so.

It seemed too good to be true to have 4% consistent returns, and their website confirms that:

c. WEALTH BUILDING ACCOUNTS ARE NOT FDIC INSURED. Although Fair will not transfer losses on the pooled investment account to customer accounts these accounts are NOT FDIC INSURED and are subject to possible loss. Wealth Building Accounts are insured by SIPC through Fair Invest’s use of Apex Custodian accounts. Accounts insured through SIPC are only protected from failure of the registered investor or broker dealer. SIPC INSURANCE DOES NOT PROTECT FROM MARKET RISK OR ANY LOSSES RELATED TO MARKET RISK OR AN INVESTOR’S DISCRETION. INVESTMENT IN SECURITIES SUCH AS THESE HAVE INHERENT RISK.

d. Returns on Wealth Building Accounts are subject to risk like any investment. 4% dividend return is effective as of March 1, 2022. This rate is subject to the discretion of FAIR Invest, LLC and may be changed at any time. No minimum account balance required. The stated percentage does not guarantee any dividends from the investment. Nothing on this site is representative or an indication of future performance.

TL;DR it’s not a substitute for cash savings in an FDIC insured bank account.

I’m still interested to hear if anyone has experience with this or any other similar savings account.

Thanks for sharing, @Umer. I would ask them two questions:

  1. What exactly are they investing in to give you a 4% yield?
  2. How is liquidity managed? Do you have to wait 2-3 days to withdraw/use funds or is it instant?

Personally, my emergency funds of 2-3 months are kept in cash inside a standard checking account while the rest is kept in a portfolio consisting of low volatility stocks. Here’s an example portfolio of what that might look like. (Disclaimer: Not investment advice.)

Low Beta/High Yield Portfolio
Strategy: Equally Weighted
Dividend Yield: 3.11%
Beta: 0.54

Ticker Name
1 ABBV AbbVie
2 APD Air Products and Chemicals
3 BDX Becton, Dickinson and Company
4 BMY Bristol-Myers Squibb
5 CCI Crown Castle International Corp.
6 CL Colgate-Palmolive
7 CMI Cummins
8 CNQ Canadian Natural
9 CSCO Cisco
10 CUBE CubeSmart
11 CVX Chevron
12 EMR Emerson Electric
13 FAST Fastenal
14 FLO Flowers Foods
15 GIS General Mills
16 ITW Illinois Tool Works
17 JNJ Johnson & Johnson
18 KMB Kimberly-Clark
19 KO Coca-Cola
20 MMM 3M
21 MSM MSC Industrial
22 NNN National Retail Properties
23 NTST Netstreit
24 O Realty Income
25 PAYX Paychex
26 PEP PepsiCo
27 PFE Pfizer
28 PG Procter & Gamble
29 PKG Packaging Corporation of America
30 PLD Prologis
31 PSA Public Storage
32 PSX Phillips 66
33 SJM J.M. Smucker
34 UHT Universal Health REIT
35 UPS United Parcel Service
36 WM Waste Management
37 XOM Exxon Mobil

And here’s the YTD performance of this portfolio compared to the S&P 500.

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That makes sense, thanks for catching that. They are SPIC insured, so that protects from catastrophic loss if they go under.

The interesting thing to me is this: In the fine print you noted they say both:

  1. Although Fair will not transfer losses on the pooled investment account to customer accounts these accounts are NOT FDIC INSURED and are subject to possible loss

and then 2. SIPC INSURANCE DOES NOT PROTECT FROM MARKET RISK OR ANY LOSSES RELATED TO MARKET RISK OR AN INVESTOR’S DISCRETION

That would seem to protect against complete loss if they suddenly went under, and overall capital loss if the investment failed to perform (which I believe they would still beat the average savings account significantly). But Im not knowledgeable enough to understand this. Thoughts?

Great points! I will ask them. Low volatility stocks still represent risk, what led you to say thats acceptable? What proportion is kept cash vs in the portfolio?

I just googled sipc and here’s one take. I don’t know if they are really that bad as I haven’t done any real research:

It seems like if they went under due to fraud, you may or may not get your money back, but nowhere did I see any mention of it protecting against investment losses. It doesnt make sense to say user accounts will not reflect losses of the pooled investments yet still say there is a risk of loss, as I am reading it. It doesn’t make sense that if their investments tanked and people panic withdrew in a classic run on the bank style that everyone can get their money out safely.

You should read all fine print if opening an account with them especially around liquidity and withdrawal limits. Even if that seemed fine, it would be a worry in the back of my mind that I have no visibility into the state of their finances. If they are transparent with finances and reporting them regularly and have regular independent audits, then I would seriously consider them though they may not survive with enough customers like me since I would pull money out when markets tank to rebalance into losing stocks, and vice versa. So if their core investment is mostly in stocks then they’d need to sell low and buy high if enough folks are doing that. How could they survive in that case?

@Omar @saad @Frhaann

I emailed Fair. They didnt include my original questions in the response bit basically I asked what you had suggested, namely where the dividend comes from investments, reconciling where loss could come into play, capital risk/ SIPC and liquidity/ withdrawal or penalties for withdrawal. Thoughts? This all sounds great (other than I’m not sure if backstop here is what I normally think of when talking about securities):

Thank you for reaching out to customer service, this email is a response to your Wealth Building Account (WBA) related inquiry.

The Wealth Building Account and the entire Fair program has been certified by a Shariah board, our gains are based on a basket of dividend paying assets, which can be operating companies, etc. We have a proprietary strategy that has been employed for 2 years now that has returned a steady rate with no changes. Can the rates change, yes, they could, but it would have to be a substantial event in the market to affect us. Also, based on our shared risk model, there is potential for gain for both you and Fair, but we protect the principal through SIPC insurance and backstopping the principal.

Fair also maintains a liquidity reserve on the monies held, so that they are available to you at any time and that allows for you to withdraw your funds whenever you wish maintaining principal protection. Members can withdraw 6 times per month from their WBA this is in accordance with the guidelines of savings and money market accounts. If you are moving from a savings vehicle more than 6 times a month, then you are not making gains and may need to be in our spending account.

Wealth building accounts are protected by SIPC insurance for Fair Invest, LLC. SIPC insurance covers customer claims up to $500,000, with a maximum of $250,000 for cash claims. For details, see www.sipc.org. Risk is mitigated and assumed by Fair Invest LLC, so members’ invested principal will not be impacted by such losses. For details, see Terms of Service | Fair

I don’t know what backstop here means either. It looks like this is a case of “just trust us” which, to some degree we take whenever we invest in something we don’t entirely own, but to degrees we have visibility (public history of performance, quarterly statements) that goes along with and forms some basis for that trust. They said their strategy is proprietary so that implies no detailed accounting of what they are doing.

Whenever something comes across as too good to be true, I am personally wary. There definitely has to be some risk of loss to the end customer. It may be very remote but it isn’t zero risk.

Best thing to do is to keep your wealth out of the banking system as much as you can. Avoid savings accounts with your bank as the bank uses that money to lend to others and you earn interest income.

There are plenty of stock broker platforms such as Wealthsimple (for Canadians) but I would say Interactive Brokers is the best platform as its worldwide and the commissions are very low. If you have a tax free savings account where you live, I suggest you start an account through your brokerage and any capital gains you make are not taxed. Find a good stock, buy the dips, and just wait.