The best savings account you've never heard of

Everybody is searching for the best place to put their savings, but this account may just have slipped off your radar...

I'm on the hunt for a savings account at the moment. Thankfully, now the wedding and associated costs have been paid off, we have a few quid left over to start a nest-egg, and I'm determined to get a decent return on that money.

The trouble is, some cracking accounts, including the old ING Direct savings account, have been withdrawn.

So if, like me, you want a reasonable return on your money you might need to look beyond the usual suspects and check out an account that probably won't have appeared on your radar before now.

The Islamic Bank of Britain

One of the best savings accounts around comes from the Islamic Bank of Britain. Now, don't despair if you aren't a Muslim - these accounts are available to everybody, but simply abide by slightly different rules. More on that later - first, let's look at why the account is so good?

The simple reason is that with its two-year fixed term deposit account, you can expect a whopping return of 4.5%.

While there are a stack of two-year bonds paying 4.25% AER, from providers as diverse as SAGA, the Post Office and the AA, you simply will not be able to get the same rate as that on offer from the Islamic Bank of Britain.

Even better, the Bank has cut the minimum deposit size, so you can now open the account for as little as £1,000

However, there are a few things to keep in mind.

You aren't getting interest!

While you will get a return of 4.5%, that won't be paid as interest, as Islam prohibits the payment or receipt of interest.

Instead, to ensure the account is Sharia'a compliant, your cash will be placed into ethical trading activities (for example, the money won't be put into gambling or tobacco companies) which the bank believes will provide the agreed profit (i.e. 4.5%) over the agreed term.

Now, when I first read that, I'll confess alarm bells went off in my head. Handing your savings over to be gambled on investments that you have no idea about sounds suspiciously like what started the whole banking mess in the first place.

So how safe is your money?

However, there is one crucial difference with the Islamic Bank of Britain's Fixed Term Deposit Account. The bank monitors how your funds are doing compared to the target profit rate on a daily basis to keep abreast of how likely they are to hit the required rate.

And if at any time they believe that market volatility is likely to hit your return, they will inform you immediately. You then have the choice to close the account, or accept a lower rate of profit. All of the profit achieved up to this point by your funds is protected by the bank, as is the initial sum you deposit.

In other words, you won't lose a penny, but you might get a slightly lower return than expected. It's also worth noting that the bank claims that, to date, it has always achieved its target profit rates, while the fact that it is a member of the Financial Services Compensation Scheme should also provide a bit more reassurance.

You also have the option of receiving your profit every three months, or retaining it in the account to be invested with your deposit. But you can't make any withdrawals during the two-tear term.

Clearly going for a saving product like this is a little bit of a gamble, but if you are hell bent on getting a great return on your money then it's a cracking option. Islamic finance options may be out of the mainstream, but they certainly merit serious consideration.

Fancy a Sharia'a mortgage as well?

If the Islamic way of doing things appeals, then you should also consider a Sharia'a mortgage. Again things work in a slightly different way to a mainstream mortgage. Basically, you buy the property alongside the bank (they will stump up 70%-80%). Then, over the term of your mortgage, you make monthly payments towards the bank, buying its share of the property over time.

And the products do look pretty attractive - for a deal of up to 80%, you will be facing an effective interest rate of 4.99%.

The lowest rate you can get elsewhere at that loan-to-value is a tracker from Royal Bank of Scotland at Bank Base Rate plus 2.39% for two years, which is obviously much more attractive, but far more of a risk should Base Rate start to move upwards. It will also set you back £1499 just to get hold of it, compared to £299 for the Sharia'a deal.

In truth, the best thing to compare the mortgage to is a long-term fixed rate. And the best five-year fixed rate at 80% loan-to-value, from Nottingham Building Society, comes at 5.59% and will cost the best part of a £1000 in mortgage fees.

lovemoney.com can help!

If you fancy getting the best possible return on your savings stash, then there are a host of clever ways in which lovemoney.com can help.

First of all, why not sign up to this goal and follow the tips and advice offered: Build up your savings

Next, watch this video: How to save when you've got no money

And finally, if you still have a question or query that needs resolving, why not head over to our Q&A section and pick the brains of your fellow lovemoney.com readers.

More: The best place for your nest egg | Great savings rates with 100% security