Certain brokers such as “freetrade” have mentioned that a “certain amount of interest is earned from banks on customers cash”.
Therefore, is it permissible to trade with such a broker, and by extension what about banks that dont give interest but receive it via the use of the money that you store with them?
Regarding Freetrade, the solution is simply to not have any uninvested cash in your trading account so then there can’t be any interest payment? Additionally, based on their website, they only pay interest on uninvested cash in the ‘Freetrade Plus Account’ which you have to pay for anyways as it has more features. The General Investment Account does not seem to pay any interest based on their website description. Have they said any different if you’ve contacted them directly?
Here in the USA we have Fidelity and TD Ameritrade which both have cash sweeps that give daily interest (very low usually) when you open an account, and there doesn’t seem to be a way to opt out of the interest option. Would it be permissible to use these services if there is no way out of the cash sweep option? I am ok with purifying by giving that portion away but not sure how I would calculate that. Any advice appreciated, especially if you have islamic evidence pointing towarsd it.
May Allah bless you.
If they pay you the interest, or they are investing on your behalf in interest bearing account, then you should avoid trading with such brokers.
Especially if they are other alternatives which has not such feature attached to the brokering service.
I think its not appropriate to compare the bank transactions with the broker ones. For example, the relationship you have with the bank is of a lender-borrower. So technically you are lending them your deposit which in turn they may use according to their own need. Not all the time they will be using it for haram purposes. There is also the question of the wider need of having a bank account in this day and age, that would make it very hard to make its usage impermissible. Therefore, until there would be another acceptable alternative, having a bank account is still tolerable. Can the same be said about holding an investment account with a broker?
And Allah knows best!
Thank you for the response @Mufti_Billal!
To clarify, they are not doing investment on my behalf and I pick what to invest clearly. This is something they call cash sweep, where the uninvested cash between trades is treated as a savings account (i.e. earns interest, for Fidelity it says 0.01%). That’s why it is really comparable to a savings account in a bank, which I do not have and not planning to have because there is an option of having a checking account. However, from my research, I could not find a reputable broker that did not have this option. Please advise if you heard or recommend any. I like to research but it has been over months and I could not clarify this question yet. I really don’t know how to proceed.
Of course one might argue, is investing in stocks a crucial need? Then, I think all of us Muslims who do not have money or time to do real estate or use other large investment vehicles will lose their purchasing power