I was reading about UIF deposit account. Does anyone have any thoughts on this? It’s like a CD but no interest is paid. It’s a profit sharing agreement. But you share the risk of not making any profit.
Apparently, they say that you can’t lose your initial deposit amount. The only risk you take is you deposit your money and may not make any profit on it by the end of your term.
This seems like a good way to keep some liquid cash as you can take the money out but you won’t get any profit from that quarter.
If anyone has more details or understanding or are personally using this service please comment.
I inquired about it. As far as I can tell, it is a regular CD repackaged into something that is passed off as sharia compliant. I have no proof of it, but if you ask the right questions my guess is you’ll arrive at the same conclusion.
I wish I arrived at a different conclusion, because I’d be eager to sign up for it otherwise.
I should’ve mentioned my main issue with it: the long term “profit” rates are lower than the short term rates: 4.1% for 1 year, 3.9 for 3 and 3.8 for 5 years at the time I checked, reflecting the pattern seen of yield inversion of interest-bearing CDs these days. At the same time they say that the “profit” is anticipated and if they make more or less in a specific quarter, then that would reflect in the return given at the end of the quarter.
If profit was purely based on quarterly performance, why would it track the inverted CD interest yields? How could money held up longer logically get a lower return if it isn’t tied into interest-based borrowing? It makes no sense to me.
I’m glad to be a layman and beginning student of knowledge, but I don’t understand Islamic finance. The people that signed this product are credible, qualified folks. I read AAOIFI standard No. 46 and was never more happy to be a layman.
For now I’m avoiding this product because it’s probably not worth the trouble ie tax implications. Secondary is that I don’t understand it.