Islamic Fixed Deposits in Malaysia — Murabahah, Mudharabah & How They Work

Malaysia is the world's largest Islamic finance market, and Islamic fixed deposits are one of its most widely used products. Every major bank in the country offers an Islamic FD alongside its conventional counterpart — often through a separate Islamic banking subsidiary or window. If you have ever looked at an FD rate board and noticed terms like "Murabahah-i" or "Mudharabah-i", this guide explains what those mean, how Islamic FDs actually work, and whether they make practical sense for your savings.

Last updated 11 October 2026 · money.com.my Editorial

What Makes an FD "Islamic"#

A conventional FD pays you interest — a predetermined return on your deposit. Under Shariah principles, interest (riba) is prohibited. An Islamic FD replaces interest with a Shariah-compliant structure where your return comes from a permissible commercial transaction instead.

The money you place does not simply sit in a vault earning interest. Instead, the bank uses your funds in a structured arrangement — buying and selling a commodity, investing in permissible assets, or entering a profit-sharing partnership. The return you receive is profit from that arrangement, not interest.

In practice, the experience for the depositor looks similar: you place money, choose a tenure, and receive a return at maturity. The legal and structural mechanics underneath are different. All Islamic banking products in Malaysia are regulated by Bank Negara Malaysia under the Islamic Financial Services Act 2013 (IFSA 2013), and the Shariah Advisory Council of BNM has final authority on whether a product is genuinely Shariah-compliant.

The Three Main Contract Types#

Malaysian banks use three Shariah-compliant contract structures for Islamic FDs. You will see these names on the product page or in the terms and conditions.

Murabahah-i (Commodity Murabahah)#

This is the most common structure. Here is how it works:

1. You place your money with the bank.
2. The bank uses your funds to purchase a Shariah-compliant commodity (typically crude palm oil on Bursa Suq Al-Sila', Malaysia's commodity trading platform).
3. The bank immediately sells the commodity at a markup.
4. The profit from that sale is your return.

The entire transaction happens behind the scenes — you never see or handle the commodity. The profit rate is fixed at the point of placement, so you know exactly what you will earn. This makes Murabahah-i the closest Islamic equivalent to a conventional fixed-rate FD.

Mudharabah-i (Profit-Sharing)#

Under Mudharabah, your deposit is treated as an investment. The bank (as the manager) invests your funds in Shariah-compliant activities and shares the profit with you according to a pre-agreed ratio.

The key difference from Murabahah: the profit rate is indicative, not guaranteed. The bank advertises an expected rate, but your actual return depends on how the underlying investments perform. In practice, Malaysian banks almost always deliver at or above the indicative rate — but there is a theoretical downside risk that does not exist with Murabahah.

Wakalah-i (Agency)#

Wakalah means "agency" — you appoint the bank as your agent to invest your funds in Shariah-compliant assets. The bank charges a fee for this service and passes the investment returns to you, minus the fee.

Some banks offer a hybrid Wakalah-Mudharabah structure, where the bank acts as agent and also shares in the profit. This model is used by several digital banks and newer Islamic banking products.

How Profit Rates Work#

Islamic FDs advertise a profit rate, not an interest rate. The terminology matters — it reflects the underlying Shariah structure — but the practical effect for your savings is similar.

A few things to understand:

• Murabahah-i rates are locked in. Once you place, your profit rate is fixed for the tenure. This works exactly like a conventional FD rate.
• Mudharabah-i rates are indicative. The bank shows an expected rate based on recent performance. Your actual return may differ — though in Malaysia, it very rarely does.
• Islamic FD rates were the same as conventional FD rates at the banks checked. Islamic board rates matched conventional, tenure for tenure, at Hong Leong, AmBank, Alliance and RHB (checked 11 Oct 2026); BSN's Term Deposit-i matches its Term Deposit at every tenure. Rates can change by bank and by period, so check both options before placing.
• General range: 12-month Islamic board rates were 1.80% p.a. at RHB (Commodity Murabahah Deposit-i, effective 3 September 2026), 1.80% p.a. at AmBank (Term Deposit-i, effective 25 August 2026) and 2.15% p.a. at BSN (Term Deposit-i, effective 7 October 2026), so 1.80–2.15% p.a., against Bank Negara Malaysia's average 12-month fixed deposit rate at commercial banks of 2.22% in June 2026. Across every tenure and Islamic term deposit product we read, board rates ran from 1.60% to 2.15% p.a.: AmBank's Afdhal Term Deposit-i pays 1.60% at every tenure, and AmBank's Term Deposit-i pays 2.00% for 15–60 months. Only time-limited campaigns run higher, at around 3.85–3.90% p.a.: on 11 October 2026 the top 12-month conventional campaign rates were 3.90% at CIMB and 3.85% at AmBank, and Islamic term deposits paid the same as conventional at the banks our fixed deposit guide checked. Check each bank's website for current rates — they change regularly with OPR movements.

Major Islamic FD Providers#

Every large Malaysian bank operates an Islamic banking arm. Here are the key names to check:

Full Islamic banks:

• Bank Islam — Malaysia's first full-fledged Islamic bank. Offers both Mudharabah-i and Murabahah-i term deposits across multiple tenures.
• Bank Muamalat — Full Islamic bank with a range of term deposit products. Often competitive on longer tenures.

Islamic subsidiaries of conventional banks:

• Maybank Islamic — The Islamic arm of Malaysia's largest bank. Wide branch and digital access.
• CIMB Islamic — Offers Islamic FD products through the CIMB app and branches.
• RHB Islamic — Available alongside RHB's conventional products.

Digital Islamic banks:

• AEON Bank — A fully Islamic digital bank, licensed under IFSA. Offers competitive promotional rates as a newer entrant.
• KAF Digital Bank — Also IFSA-licensed, but focused on SME and business banking rather than retail term deposits.

AEON Bank is digital-only, which means no branch visits — everything is handled through the app. Its rates tend to be competitive as it builds its deposit base. Note that AEON Bank's core retail product is a savings account rather than a term deposit; check the app for current term-deposit availability.

Boost Bank is not on this list. It is licensed under the conventional Financial Services Act 2013, not IFSA, and it does not offer a fixed or term deposit product.

For current rates at any of these banks, visit their websites directly or check aggregators like RinggitPlus that maintain updated comparison tables.

PIDM Protection#

Your Islamic FD is protected by PIDM (Perbadanan Insurans Deposit Malaysia) under the Deposit Insurance System. This is the same government-backed deposit protection that covers conventional FDs — but applied separately.

Here is what that means:

• Islamic deposits are covered up to RM250,000 per depositor per member bank.
• This coverage is separate from your conventional deposit coverage at the same bank. If you have RM250,000 in a conventional FD and RM250,000 in an Islamic FD at the same bank, both amounts are fully protected — RM500,000 total.
• PIDM coverage applies to all licensed banks in Malaysia, including digital banks (AEON Bank is a PIDM member, as are all five licensed digital banks).

This dual coverage is a genuine advantage of the Malaysian system. It means you can double your insured deposit ceiling by holding both conventional and Islamic FDs at the same institution.

Tax Treatment#

Profit earned from Islamic fixed deposits placed with licensed Malaysian financial institutions is tax-free for individuals. This exemption applies under the Income Tax Act, mirroring the same treatment given to conventional FD interest.

You do not need to declare Islamic FD profit in your annual tax return (Form BE). The bank handles the tax treatment at source — you receive your full profit at maturity with no deductions.

This applies to deposits placed with any institution licensed by BNM. It does not apply to deposits placed with unlicensed entities or offshore institutions.

Islamic FD vs. Conventional FD — Practical Differences#

For the average depositor, the day-to-day experience of an Islamic FD and a conventional FD is nearly identical. Here is what actually differs:

The practical bottom line: returns are comparable, protection is the same (and separately counted), and the tax treatment is identical. The structural difference is real but does not affect your pocket.

Who Should Choose an Islamic FD#

Muslims seeking Shariah compliance: This is the primary use case. If conventional interest is a concern for you, Islamic FDs provide a compliant alternative with comparable returns and identical deposit protection.

Non-Muslims looking for competitive rates: There is no religious requirement to open an Islamic FD. Anyone can open one at any bank. If the Islamic rate at a particular bank and tenure is higher than the conventional rate, take it — the PIDM coverage is the same, the tax treatment is the same, and the money is equally safe.

Anyone wanting to maximise PIDM coverage: Because Islamic and conventional deposits are insured separately, placing RM250,000 in each at the same bank gives you RM500,000 of insured deposits. This is relevant for anyone holding large cash reserves.

How to Open an Islamic FD#

The process is straightforward:

1. Choose a bank and product. Compare profit rates across banks — check both the standard rate and any promotional rates for new funds.
2. Minimum deposit. This varies by bank, typically starting from RM1,000 to RM5,000. Some digital banks accept lower minimums.
3. Tenure options. Standard tenures range from 1 month to 60 months. Shorter tenures (1–3 months) give you more flexibility; longer tenures may offer slightly better rates.
4. Open online or at a branch. Most banks allow Islamic FD placement through their app or online banking. AEON Bank, the retail Islamic digital bank, is app-only.
5. At maturity, the bank will either auto-renew your deposit or return the principal plus profit to your linked account, depending on your instructions at placement.

If you already hold a conventional FD at a bank, switching to the Islamic equivalent is usually a matter of selecting the Islamic product option in the same app — no need to open a new account.

Compare Rates Before You Place#

Before locking in any FD — Islamic or conventional — check our FD rates comparison tool to see what is available across banks and tenures. Small differences in rate compound over time, and promotional rates can push returns well above the standard band.

For context on where FD rates are heading, follow OPR decisions on our tracker — the OPR directly influences both conventional and Islamic deposit rates.

Amendment — 31 July 2026. This guide has been corrected. It previously listed Boost Bank as a "full Islamic digital bank" among the providers of Islamic fixed deposits. That was wrong on two counts. Boost Bank is licensed under the conventional Financial Services Act 2013 — Bank Negara Malaysia licensed the Boost/RHB consortium under FSA on 29 April 2022, and PIDM lists Boost Bank Berhad under Licensed Banks, not Licensed Islamic Banks. Boost also does not offer a fixed or term deposit product at all. Readers seeking an Islamic FD from a digital bank were being pointed to an institution that offers neither. The listing now names AEON Bank and KAF Digital Bank, the two IFSA-licensed digital banks.

Amendment, 11 October 2026. The "How Profit Rates Work" section previously said "Islamic FD profit rates in Malaysia typically fall in the 3–4% p.a. range". That described campaign rates, not typical ones. It now gives 12-month Islamic board rates: 1.80% p.a. at RHB ("RHB Commodity Murabahah Deposit-i Rates of Return / With effect from 03 September 2026", 12 months 1.80%) and 2.15% p.a. at BSN (Term Deposit-i, effective 7 October 2026), and says only time-limited campaigns reach about 3.85–3.90% p.a., using the 12-month conventional campaign rates (3.90% at CIMB, 3.85% at AmBank) that our fixed deposit guide read from the banks' own pages on 11 October 2026. The same section previously said that "at some banks and some tenures, Islamic rates run slightly higher (0.05–0.15 percentage points)". That contradicted the check in our fixed deposit guide, which found Islamic term deposits paid the same as conventional ones at the banks it checked on 11 October 2026, and BSN's rate pages show its Term Deposit-i and Term Deposit at the same rate for every tenure. The line now says so. Sources: RHB Commodity Murabahah Deposit-i and BSN profit rates, read 11 October 2026.

Amendment, 11 October 2026 (which banks were checked). The "How Profit Rates Work" section said Islamic term deposits paid the same as conventional ones "at the banks our fixed deposit guide checked" without naming them. It now names them: the Islamic board rates matched the conventional ones, tenure for tenure, at Hong Leong, AmBank, Alliance and RHB (checked 11 October 2026, as recorded in our fixed deposit guide), and BSN's Term Deposit-i matches its Term Deposit at every tenure (BSN's rate pages, effective 7 October 2026). No rate changed.

Every guide on money.com.my is fact-checked against primary sources (Bank Negara Malaysia, Department of Statistics Malaysia, KWSP/EPF, LHDN) before publication. If you find an error, email corrections@money.com.my — corrections are published with a dated amendment note.

Amendment, 11 October 2026 (Islamic board-rate range). The "How Profit Rates Work" section gave the 12-month Islamic board rates as RHB's 1.80% and BSN's 2.15% only. A second check of the banks' own pages on 11 October 2026 added AmBank's Term Deposit-i (1.80% for 12 months, effective 25 August 2026) and found lower rates elsewhere in the same product family, so the section now says that 12-month rates are 1.80–2.15% p.a. and that, across all tenures and Islamic term products read, rates are 1.60–2.15% p.a., against Bank Negara Malaysia's 2.22% average for commercial banks in June 2026. RHB's rate for more than 12 months is negotiable and is not counted. BSN's MyFortune is excluded because it is a draw-linked scheme for non-individuals. Sources: AmBank rates, fees and charges, RHB Commodity Murabahah Deposit-i and BSN profit rates, read 11 October 2026.