In a previous post we spoke about the different types of zakatable wealth. Of these, arguably the most clear-cut (and most popular) are cash and savings. Though these two forms of zakatable wealth are quite straight forward, there are many questions pertaining to them which have been raised and will be addressed in this post. Questions such as: Are all bank and building society accounts considered as cash or savings? What is the tax status of savings that have been earned on salary? How can one subtract expenses from their wealth for the purpose of paying zakat on their cash and savings? What if there is a decrease or fluctuation in one’s savings over the course of a year?
The guide explains all of the factors involved, details the calculation to the formula and includes a worked example.
The Three Conditions for Zakat on Savings
In preparing the calculation let us first ensure that our cash and savings are includable in our Zakat contribution. There are 3 important conditions to be first satisfied before we calculate. Firstly, do we have enough total zakatable wealth to exceed the amount of niṣāb. Secondly, has it been a full lunar year since the amount of niṣāb was first exceeded by our wealth. Thirdly, do we possess full ownership over the wealth.
Three conditions need to be fulfilled at the same time. You have sufficient savings and it is the right time to pay zakat, and you have more than the amount of niṣāb. All these conditions need to be present simultaneously. However, if you had less than the niṣāb limit but remained at that low level for a reasonable time, then only as soon as your savings come back above the niṣāb limit the period of ḥawl for zakat would start.
What Is the Cash Niṣāb Threshold?
In relation to cash and savings the level of the niṣāb may be measured against the gold standard or the silver standard depending upon the school of law that is under consideration.
Thus the gold niṣāb is 85g of gold, worth around £7,200-£8,000 at the time of writing. All schools of law agree on this cash-based figure for the niṣāb. Wealth comprised of both gold and silver is also deemed to be at the level of the gold niṣāb according to the Maliki, Shafi’i and Hanbali schools.
Silver niṣāb (pl: niṣāāb) is the amount of pure silver required to equal the benchmark for paying the religious alms (zakat). Silver has a niṣāb of 595 grams which equates to $535–$655 at today’s silver price (around $1.10 per gram). It is worth noting that the zakat threshold for cash and savings is generally taken as the lower limit by the Hanafi school.
When calculating how much gold or silver is required to equal the amount of cash that needs to be given to the poor it is important to use the spot price of gold and silver as of the date of the anniversary of your Zakat, not the price on some other date. This means that the dollar amount of the minimum amount of assets that are subject to Zakat (the niṣāb) can be expected to vary substantially from year to year based on live market prices.
What Counts as Zakatable Cash?
When working out your total wealth we will consider all accessible cash whether held in any current, high or instant access savings and fix rate bonds (including those with early redemption penalties), or under your own control at home, in Apps and digital wallets such as PayPal and any foreign currency that has been converted to sterling at prevailing exchange rates.
When calculating what cash will be included in the cash sum to be zakatable look at two things: ownership of the cash and access to the cash (whether on hand or with notice). This means cash in joint accounts is included but in proportion to your ownership.
Remember that any money that you have committed to payment (e.g. last week’s electricity bill) or for which you have already expended use (e.g. lunch with a friend last week), is not subject to zakat. However, money that you have put aside for later use (e.g. next month’s rent), and is still sitting in your account at the time of your zakat date, is subject to zakat.
Click here for Musaffa Zakat Calculator
Step-by-Step Calculation
Every year on your Zakat anniversary date, take the following 5 steps.
Step | What to Do | Example ($) |
1 | Add up all cash: current accounts, savings accounts, cash at home, digital wallets, foreign currency (converted) | $24,500 |
2 | Deduct immediately due liabilities: bills, rent, credit card payments currently owed | − $3,200 |
3 | Check the result against your niṣāb threshold (gold or silver, depending on your school) | Niṣāb ≈ $650 |
4 | Confirm one full lunar year (ḥawl) has passed since wealth was above niṣāb | ✔ Yes |
5 | Apply the zakat rate of 2.5% to your net zakatable cash | See below |
Net zakatable cash (Step 1 − Step 2) | $21,300 | |
Zakat due (2.5% of $21,300) | $532.50 |
Zakat on Salary Savings: What Salaried Workers Need to Know
For those on a regular salary, their savings on a yearly basis will naturally vary as the amount of money they have at their disposal at different times in the year. The question therefore naturally arises: will a person on a salary have to pay zakat on all their savings, including the sum saved in the last month of the year?
Does each deposit get counted? The majority say yes. However, this means you only get to count what you have on the day of your zakat anniversary, not what you had throughout the rest of the year. So you don’t calculate on a deposit by deposit basis and then add it up throughout the year. Instead, you calculate on the basis of what you have in ALL your accounts on the day that your ḥawl ends. That means it is your total cash less any urgent needs you have. Your salary for the month less any expenses you had prior to the zakat anniversary, for example.
For working people, it could be easier to fix a date for zakat. Then, you just check your balance on that date, calculate how much zakat is due and pay it. Everything you have saved since last year is captured in that single moment in time.
What About Interest on Bank Accounts?
The interest paid by most high street bank and building society accounts is very small but is still interest due to be paid. All high street accounts pay interest on your savings and the interest income is classed as haraam and must be given away. This does not form part of ones general Zakat, and the intention is to take the haraam out of one’s wealth and render it pure.
When calculating your zakat please only include the total of your account balance (with interest or without interest) in your calculation. Therefore you will actually reduce your balance (for purification) by the interest you give to charity but the entire balance (with interest) will be included in the zakat calculation first. This means that interest purification and zakat calculations are two separate processes.
Combining Cash With Other Zakatable Wealth
Many people believe Zakat is only to be calculated on cash and savings however in reality it must be calculated on all items which a person owns i.e. cash/savings, gold, shares, business assets and/or receivables.
Include in your calculation on the day of zakat payment all the net cash you have with you plus the value of gold and other investments that you may have and cash that others owe to you. Similarly, include in the calculation any other thing that can be subject to zakat. After you have done that, then deduct all the liabilities you have to pay. Calculate the niṣāb from all the resources you have. Calculate the 2.5% on the excess amount over the niṣāb.
Generally, cash zakat may seem easier to determine if it will render you payable to cross the niṣāb barrier; often, however, other components of your assets will push you over the threshold, or complicate the calculation. It is therefore prudent and scholarly advisable to calculate all of your assets on the same date each year.
Common Questions
My savings are variable. What figure should I use?
Don’t look at the balance from last month or from three months ago. For the calculation of zakat, only look at what is in your account on your zakat anniversary date. This is what is called the principle of ḥawl in the shariah. This principle does not allow the averaging of balances. Thus, even if your account had R50,000 last month and your average for the year was R80,000, you calculate your zakat based only on the R40,000 in your account on your zakat anniversary date. Likewise, if your account was at R70,000 on your zakat anniversary date but had dropped to R40,000 three months ago and remained below niṣāb for the rest of the year, you calculate zakat based only on the R40,000 in your account on your zakat anniversary date. In both cases, your wealth was above niṣāb for the entirety of the year and thus you use the balance on your zakat anniversary date.
Do savings that are put aside for a particular purpose count as savings?
Even if you are saving up for something and that money has not been spent, then it is still included in your wealth over which zakat must be paid unless the money has already been expended. Saving for a deposit on a house, wedding funds or capital for a future business or opportunity do not exempt such sums from being subject to zakat unless the money has actually been spent. Although you intend to use the money in the future, this does not affect the amount of zakat that must be paid on your current wealth.
Can I hold savings in different currencies or countries?
All your cash and deposits in foreign currency should be converted to your local currency at the exchange rate prevailing on your zakat date. All your accounts - savings, current, fixed deposits, etc, across all banks and countries - are added together for the calculation. As long as you have access to these accounts, it doesn't matter that they are in different locations.
The Bottom Line
Zakat on cash and savings is the simplest part of the whole zakat calculation process. One needs to calculate and add up all the cash and savings that one has under one’s management. The amount of debt which one owes and which one has to pay up within a reasonable timeframe has to be deducted from it. Next one needs to check if there is a niṣāb. Thereafter one waits for the end of one’s ḥawl and then pays 2.5%. Five steps. One date. Once a year.
We always do the same thing on the same day every year. As a result, it never becomes a problem. It only takes 5 minutes to do at the end of the year, and that’s because we always do the same thing on the same day every year. We remind ourselves to do it on the same day every year, and as a result, it’s easy. We have all of our numbers ready the day before.
And Allah knows best.
Disclaimer: Musaffa Academy articles are provided for informational purposes only, and are not research reports or legal, tax, investment, or financial advice. Content may include historical or hypothetical data; past performance does not guarantee future results.
Stock screenings, halal status, grades, and classifications are based on AAOIFI methodology and the oversight of Musaffa’s Shariah scholars. The content is not tailored to your financial situation, risk tolerance, or investment objectives. Always conduct your own research or consult a qualified financial advisor before making decisions.
Musaffa Islamic Social Responsible Investing (MISRI) proprietary rankings are internally developed by Musaffa and are currently in beta. While we continuously work to improve accuracy and reliability, no guarantees are made regarding completeness or correctness.
Logos and brand names are used for identification only and do not imply endorsement. Information is accurate as of the publication date and may change. All content, materials, and methodologies are the exclusive property of Musaffa and are protected by copyright law.
For full details, please visit: https://musaffa.com/disclaimer
Nafisahon
Nusrat Ahmed
Danesh Ramuthi