Why an interest-free savings account RRSP can be a good investment

I got an email a couple of months ago from a Muslim Link reader who had a question about halal investing. Her employer offers a company-matched RRSP (Registered Retirement Savings Plan) program. So she could contribute a portion of her pre-tax income to an RRSP and the employer would match her contributions up to a limit.

They gave her a menu of investments to choose for her RRSP.  She didn’t know which, if any, were halal, so she asked me to have a look.

I’ve had a couple of other friends ask me something similar and unfortunately, none of the options that were offered were halal. They all had either a fixed income component (i.e. bonds, GICs) or they were investing in non-compliant companies (mostly banks).

This reader’s options were no different. I told her the unfortunate news, but that wasn’t the end of this story.

She went back to her employer and insisted that she be given a halal investing option — or at least something that doesn’t involve fixed income, interest-based investments or investments in non-Shariah compliant companies.

They gave her an RRSP account that pays no interest but also doesn’t invest her money in anything.

She asked me to verify if that was halal. I told her it was just like a regular no-interest bank account. Sure, it was halal, but there was no obvious benefit to putting money in there either.

Except…

There is an obvious benefit:

If her company is matching her contributions, every dollar she puts in there is doubled.

Also, she’s contributing pre-tax income. So, assuming her income is taxed at 35%, every $1000 she puts into the account only reduces her paycheque by $650. Plus, it’s being matched by her employer. So, by reducing her take-home pay by $650, she gets to increase her retirement savings by $2000.

Finally, contributions to her RRSP are deducted from her gross income.  So when it comes to calculating her income tax, so her income tax bill will also be lower.

This no-interest savings account is actually one of the best halal guaranteed investments you could make!

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