What Should You Do With Bank Interest? A Guide for US Muslims

Interest that builds up in your account needs to come out. The majority position among contemporary scholars is that interest which has already accrued in your bank account should be given away in full to someone who needs it, without intending it as charity — and that it cannot be counted toward your Zakat.

The principal you deposited is yours. The increase the bank added is not.

That distinction is the whole of it, and it comes straight from the verse most often cited on the subject: “But if you repent, you may have your principal — [thus] you do no wrong, nor are you wronged.” (Surah al-Baqarah, 2:279) You keep what you put in. What was added on top is disposed of.

Why Interest Is Treated Differently From Income

Riba is usually translated as interest or usury, and in the Qur’an it is set directly against trade: “But Allah has permitted trade and has forbidden interest.” (Surah al-Baqarah, 2:275) The contrast is the point. In a trade, both sides carry risk and the gain is earned against it. In an interest-bearing account, the return is fixed in advance and detached from any risk or effort.

This is why disposing of interest is not treated as a generous act. You are not giving away something that belongs to you — which is why scholars are careful to say it should be given without the intention of charity behind it.

What the Qur’an and Sunnah Say About Riba

The prohibition is stated more than once, and in different registers. Surah al-Baqarah (2:275–279) draws the contrast with trade, instructs believers to give up what remains of riba, and then permits them their principal — which is the passage the whole practical rule rests on. Surah Al ’Imran (3:130) addresses compounding specifically. Surah ar-Rum (30:39) sets wealth given to increase through other people’s wealth against Zakat given seeking the face of God, which is the clearest statement of why the two cannot be the same act.

There is also a narration in Sahih Muslim in which the Prophet ﷺ cursed the one who consumes riba, the one who pays it, the one who records it and its two witnesses, and said they are alike (Sahih Muslim, 1598). Scholars cite it to argue that involvement in riba reaches further than the person who ends up holding the money — which is part of why the question of the account itself is treated separately from the interest already sitting in it.

Why It Cannot Count as Your Zakat — or as Sadaqah

Zakat is an obligation paid out of wealth you lawfully own. Interest is not lawfully owned wealth, so paying it out does not discharge a duty attaching to your own money. Using it to cover your Zakat would mean settling that duty with funds you were required to get rid of anyway — the two do not cancel out, and you would still owe the Zakat. There is broad agreement on this, and it matters practically, because people sometimes assume both can be settled in one transfer.

Whether it counts as sadaqah is the more nuanced question. Most scholars say the giver receives no reward, because reward attaches to giving away what is yours, and they describe the act as an obligation of disposal rather than a voluntary gift.

A minority position holds that someone sincere in removing unlawful wealth and putting it where it does good may be rewarded for the sincerity of the disposal, even though the money itself carries none. Either way the instruction does not change.

The same logic separates it from a voluntary gift — we set out the difference between an obligation and a voluntary gift separately. And the threshold your wealth has to reach before Zakat is due is calculated on your own holdings, with the interest excluded from the total rather than added to it.

Where the Interest Can Go

It should go to someone in need. The intention is to remove it from your wealth, not to benefit personally from the giving. Most scholars treat general relief for the poor as the safest destination: food, medical care, shelter, emergency response. Some hold it should not go to a masjid or building work, reasoning that funds for a place of worship should be unambiguously clean; others permit public utilities such as drainage or road repair, where no one is enriched.

A practical note that catches people out: because this is not Zakat, you are not bound by the eight categories Zakat may be paid to. The recipient does not need to be Zakat-eligible — they need to be genuinely in need, and the money needs to leave you completely. It is still worth knowing what to look for in a charity before you hand anything over.

What About the Account Itself?

One thing worth settling first: leaving the interest sitting in the account untouched is not the same as declining to take it. Scholars generally hold that this does not work, because the bank continues to use the money and you remain its nominal owner. Leaving it is a decision about the money, not an abstention from it. The instruction is to remove it.

Most US checking accounts pay no interest at all, so for many people this only arises on a savings account, a CD, or a brokerage sweep account. Where the option exists, the straightforward step is to switch to a non-interest-bearing account, or ask the bank to disable interest — some will, some will not.

Where that cannot practically be avoided, scholars differ. Some hold the account should be closed regardless of inconvenience. Others, writing on Muslims living as minorities in non-Muslim financial systems, permit keeping it on grounds of genuine necessity — you cannot receive a salary or pay rent in the US without an account — provided the interest is stripped out as it arrives. Both positions are held by recognized scholars.

A related question, more debated still, is whether the interest may be used for something that is not personal benefit — a tax bill, say, or a bank charge. Some contemporary scholars permit directing it towards obligations owed to the state or to the bank itself, on the grounds that no personal enrichment occurs.

Others hold that any use by the account holder is a form of benefit, and that the only clean disposal is giving it to someone in need.

Mortgages and Student Loans

These come up more than anything else in the US, and they are where contemporary scholars disagree most sharply. On conventional mortgages, one body of opinion holds that the prohibition applies without exception, and that a Muslim should use an Islamic home finance provider or continue renting. Another holds that home ownership in a country with no realistic Islamic alternative can fall under a recognized allowance for necessity, and several well-known European and North American councils have issued rulings along those lines. The disagreement is not close to settled.

Student loans divide opinion similarly, with one added wrinkle: interest you pay is a different question from interest you receive. This article concerns the latter. Interest paid to a lender is not something you can purify by giving money away — that is a separate matter, and one worth putting to someone who knows your circumstances.

How to Work Out the Amount, and Give It

The figure you need is the interest credited, not the balance. Most US banks label it “Interest Paid” with a year-to-date total, and the annual figure also appears on the Form 1099-INT your bank issues if it paid you $10 or more. Monthly statements list each credit separately, so a single year can be totalled in a few minutes. Where several years have gone by and the records no longer exist, scholars generally accept a careful estimate rather than requiring exact reconstruction — the obligation is to remove the wealth, not to produce an audit.

Zakat is worked out on a different basis Round up rather than down.

Then give that amount away, separately from your Zakat and from your usual giving, so the accounting stays clean. Do not claim it as a charitable deduction — taking a tax benefit would mean deriving a benefit from the interest after all. If the total is large enough that giving it at once is not manageable, it can be given in instalments; the requirement is that it leaves your ownership, not that it leaves on a particular day.

Then set a reminder to repeat it quarterly or annually, because this is recurring housekeeping rather than a one-time fix. The one thing worth avoiding is postponing the calculation until it feels complete, because in practice that is what turns a small annual task into a large one.

Where this article sets out more than one position — on keeping an interest-bearing account, on where purified funds may go, on using them for a tax bill or bank charge, and on conventional mortgages and student loans — those are long-standing differences between recognized scholars, each argued in good faith from the same sources. We do not take a side on any of them. For a ruling on your own circumstances, ask your local imam or a scholar you trust.

Sources

- Qur’an, Surah al-Baqarah 2:275, on the distinction between permitted trade and forbidden interest, and 2:279, on retaining the principal sum — both quoted exactly. Surah Al ’Imran 3:130, on compounding. Surah ar-Rum 30:39, contrasting wealth given to increase through others’ wealth with Zakat given seeking the face of God.
- Sunnah. Sahih Muslim, the narration in which the Prophet ﷺ cursed the one who consumes riba, the one who pays it, the one who records it and its two witnesses, and said they are alike.
- Scholarly positions set out side by side without preference: on disposing of accrued interest without the intention of charity; on whether any reward attaches to the disposal; on whether an interest-bearing account may be retained under necessity where no alternative is practically available, a question addressed at length in contemporary rulings on Muslim minorities in Western financial systems; on whether purified funds may go to a masjid, to public utilities, or towards a tax or bank charge; and on conventional mortgages and student loans. Drawn from contemporary fiqh literature on Islamic finance and the published rulings of recognized councils. Presented without adjudication.
- US tax reference. Form 1099-INT is issued by a payer that has paid $10 or more in interest during the tax year — IRS Instructions for Forms 1099-INT and 1099-OID. This article does not give tax advice; confirm your own situation with a tax professional.

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