Zakat on Your Savings - Everything You Need to Know!

By Shaykh Nabil Khan – Aug 2021 

Wealth is a major part of our lives. We work hard to provide a comfortable life for ourselves and our families. Unfortunately, thousands struggle daily just to survive the ever-growing costs of living.  

In Islam, Zakat has been delineated as one of the 5 pillars of our religion. As Muslims, we are required to pay Zakat, which is approximately 2.5% of our wealth in charity, if we have amassed enough that requires us to do so.  

Allah says, “And establish prayer and give Zakat, and whatever good you put forward for yourselves – you will find it with Allah.” (2:110, Qur’an). 

Although we have many expenses and goals in our lives and for our futures, it is imperative that we do not carelessly forgo the obligation of paying Zakat, but rather adhere to the guidelines provided within Islam. In many cases, people intend to retain and save wealth for future expenses, which are usually larger expenses, like weddings, school, cars, houses, retirement, and so on. Although, the intention is extremely noble and the cause praiseworthy, the rules of Zakat need to be applied to determine if and how Zakat is due on these savings.  

In general, when one saves wealth and has reached the level of Nisab (a threshold of wealth at which Zakat becomes due), then Zakat is mandatory to pay. However, when calculating one’s Zakatable wealth, the amount of debt, payable loans, and future or past expenses can affect the total amount that is truly Zakatable. To clarify we will briefly explain each of these concepts. 

DEDUCTIONS & NON-DEDUCTIONS FROM ZAKATABLE ASSETS: 

1) Debts: Debt is money that is liable to be paid to someone else. There are two types of debts: Short-term and Long-term. 

A) Short-Term Debt: A debt required to be paid within 1 lunar year. This type of debt is deductible and the entire amount will be deducted from the Zakatable wealth.

B) Long-Term Debt: A debt which is not required to be paid within 1 lunar year. This debt is non-deductible and cannot be deducted from the Zakatable wealth.

2) Expenses: Expenses are those that are either due or owed for a service or transaction that was completed and required payment. There are also two types of expenses: past expenses and future expenses.  

A) Past/Overdue Expenses: Money that is already due and has yet to be paid. This will be deducted from Zakatable 

B) Future Expenses: Money that is not yet owed (due to the service or job not yet complete) is not deductible and does not reduce from the Zakatable asset value.

Based on this information we can provide some practical examples for scenarios and provide the ruling of Zakat in each situation.  

1) Saving money to buy a home: To save money for this purpose will require one to still pay Zakat on whatever amount has been saved.  

• One exception to this is if the property is being purchased within the year and a person has already provided the initial deposit, then the remaining down payment can be considered as a debt paid within 1 year. The buyer of the property is legally liable to make the payment within the 1 lunar year and thus the entire amount will be deducted from the Zakatable assets.  

2) Saving for education: If one is saving for their own education or that of a child, then they are still the interim owner of that wealth until it is spent, or transferred over to the child. Therefore, Zakat will need to be paid on this amount.  

• According to the Hanafi School, Zakat is not paid by an underage (immature) child. If a RESP was opened and money was deposited into the RESP for the child then it is considered the child's wealth, and thus is not Zakatable. 
• In the other three madahib, all wealth owned by children is Zakatable. The parent or guardian of the child may take responsibility for making Zakat payments from the wealth of those under their care. 

3) Saving for a wedding reception: In Islam one should focus on having a wedding that is within their means. It is not advised that one should feel the need to save tirelessly and over-burden themselves to save for an extravagant wedding. The money that is saved up for a wedding reception or event, this money is Zakatable, whether the wedding is big or small.  

4) Saving to perform Hajj: Hajj is a one-time obligation on each and every Muslim capable of performing it. It is important to note that Hajj is an obligation only when the time comes. If one is capable of performing when the season of Hajj dawns, then it will be obligatory. As for Zakat, that comes first. This means that paying Zakat is required on any savings, even if the intention is for Hajj. If one saved enough for Hajj, but cannot go to Hajj due to paying Zakat, there will be no harm in this and paying Zakat first will be the correct approach.  

Money is naturally very dear to us and sometimes it becomes very difficult to part with it, especially when the purpose of accumulating that wealth is a noble one: like saving to go for Hajj, getting married, or gaining an education. That being said, we should never underestimate the blessings that are retained from paying our Zakat, especially when it is difficult to do so.  

The Prophet (SAW), when describing the best state of giving charity, said: “To give when you are healthy and uncomfortable, when you hope to become wealthier and fear becoming needy” (Bukhari). This hadith teaches us that when we give for the sake of Allah and feel a difficulty in parting with that wealth, it is natural, and carries with it an enormous reward. In another hadith the Prophet (SAW) said, “Charity does not reduce wealth” (Bukhari). We should console ourselves by having certainty that when we pay Zakat, we are not losing money, but rather gaining a reward with no loss whatsoever. We should always pray to Allah asking to grant us the ability and honour to pay Zakat. There may come a time when we can no longer pay Zakat even if we desire, and so it is important to acknowledge the privilege we possess in being able to pay Zakat. 

CLICK HERE for more information on how to pay your Zakat.