The difference between Islamic profit rate and conventional interest rate in term of fixed deposit : the study on Malaysia local banks products / Muhammad Afiq Izaldin

• Main Author: Izaldin, Muhammad Afiq
• Format: Student Project
• Language: English
• Published: 2013
• Subjects: Bank accounts. Bank deposits. Deposit banking; Special classes of banks and financial institutions; Investments by savings banks; Finance, Islamic
• Online Access: http://ir.uitm.edu.my/id/eprint/44763/1/44763.pdf; http://ir.uitm.edu.my/id/eprint/44763/

Saving is one of the ways to secure wealth from any catastrophic or bad things happen. One of the ways is put a wealth to someone that can be trusted and ensure the safety of the wealth. These acts are called deposit In simple term, deposit means putting wealth to someone else for safe keeping. As the time goes by, the deposit evolved from keeping the wealth safe into making more wealth from the wealth that has been kept for safety, known as fixed deposit or time deposit. In other words, fixed deposit is when the money deposit into the bank institutions for certain time and cannot be withdrawn until maturity date unless the penalty has been paid. After the maturity date, the money can be withdrawn or can continue for another maturity date. At present, the analysts and customers instinctively want to compare the performance and the pricing between the Islamic and conventional banking system (Erusan & Ibrahim, 2007). The main reason that comparisons are made to find the best or the one that can give most benefits towards them. The best ways to understand this situation is by comparing Malaysia banking system. That is because the Malaysia has practiced a dual banking system where Islamic banking system operates side-by-side with a conventional one (Erusan & Ibrahim, 2007). Meaning that the conventional bank also provides the Islamic banking product offered to the customer. The Islamic banking has the same purpose and operations as conventional banking. However, the Islamic banking refers to a banking system activities that operate within the Shariah guideline (ISRA, 2012). In other words the Islamic banking aims are to maximize profits same as the conventional banking but must be in line with the Shariah. The Islamic banking is Malaysia started operating in July 1983 after the introduction and enforcement of two new acts known as Islamic Banking Act and Government Investment Act (Yusoff & Wilson, 2009). However, the earliest Islamic banking in malaysia could be traced back to September 1963 when Perbadanan Wang Simpanan Bakal-Bakal Haji (PWSBH) was set up for the purpose of Muslim to save money for their Haj expenses. In 1969, PWSBH merged with Pejabat Urusan Haji to form Lembaga Urusan dan Tabung Haji and now, it is recognized as Lembaga Tabung Haji (Erusan & Ibrahim, 2007). The aim of this research is to examine the differences between Islamic banking profit rate and conventional banking interest rate in fixed deposit from the year 2008 until 2011, and between Bank Rakyat Malaysia and Malayan Bank Berhad. The main purpose of the research is to find the significant difference between Islamic profit rate and conventional interest rate for both banks.