Short answer
Yes. Interest a bank pays on your savings is riba, so you may not keep it for yourself. If you have already received some, take it out and give it to the poor without hoping for reward, and keep your money in a current account or a Shariah-compliant account instead.
Earning interest on deposits is haram. Interest already received must be given away to the poor without the intention of reward; it does not count as zakat or sadaqah. Keeping money in a non-interest current or checking account is permitted.
The four schools agree on this.
Explanation
A savings deposit is, in law, a loan from you to the bank. When the bank pays you a percentage for the time it holds your money, that is extra on a loan: riba. The same applies to high-yield savings accounts, certificates of deposit (CDs), interest-paying money market accounts, government and corporate bonds, and premium interest on a current account.
You still need a bank to keep money safe and receive your salary, and that is allowed. Use a checking or current account that pays no interest. A savings account at an Islamic bank that shares real profit with depositors (mudarabah) is halal in principle, though each product should be checked.
What to do with interest you already have. Do not use it on yourself. The Hanafi position:
- Withdraw it rather than leave it with the bank, and give it to poor people without the intention of reward.
- It does not count as your zakat or as sadaqah, because "Allah is pure and accepts only what is pure."
- Do not use it for your own bills, gifts to family you support, or the building of a masjid.
- If you cannot tell the exact amount from past years, make a careful estimate and give that.
The Quran tells those who repent from riba, "you may have your principal" (2:279). Your own deposits are yours; only the extra must go. When you work out your zakat, count your savings but not the interest you are giving away. The four schools agree that interest on deposits is riba.
The evidence
Quran, Surah Al-Baqara 2:278
يَٰٓأَيُّهَا ٱلَّذِينَ ءَامَنُوا۟ ٱتَّقُوا۟ ٱللَّهَ وَذَرُوا۟ مَا بَقِىَ مِنَ ٱلرِّبَوٰٓا۟ إِن كُنتُم مُّؤْمِنِينَ ﴿٢٧٨﴾
O you who have believed, fear Allah and give up what remains [due to you] of interest, if you should be believers.
Believers must give up interest still owed to them.
Quran, Surah Al-Baqara 2:279
فَإِن لَّمْ تَفْعَلُوا۟ فَأْذَنُوا۟ بِحَرْبٍۢ مِّنَ ٱللَّهِ وَرَسُولِهِۦ ۖ وَإِن تُبْتُمْ فَلَكُمْ رُءُوسُ أَمْوَٰلِكُمْ لَا تَظْلِمُونَ وَلَا تُظْلَمُونَ ﴿٢٧٩﴾
And if you do not, then be informed of a war [against you] from Allah and His Messenger. But if you repent, you may have your principal - [thus] you do no wrong, nor are you wronged.
On repenting, a person keeps the capital and gives up the increase.
Sahih Muslim 1015
Sahih... إن الله طيب لا يقبل إلا طيبا ...
"Allah is pure and accepts only what is pure."
Unlawful money is given away to be rid of it, not as charity hoping for reward.
Sahih Muslim 1598
Sahih... آكل الربا وموكله وكاتبه وشاهديه ...
"He cursed the one who consumes riba, the one who pays it, the one who writes it and its witnesses."
Consuming interest is the first act named in the curse.
Where the ruling is recorded
- Radd al-Muhtar (Ibn Abidin), Kitab al-Hazr wa al-Ibaha, on wealth gained unlawfully. Unlawful wealth that cannot be returned to its owner is given to the poor.
- Fatawa Mahmudiyya, Chapter on interest. Directs that bank interest be withdrawn and given to the poor without intention of reward.
This answer is pending review by the scholars on our team. Quran translation by Sahih International. Hadith Arabic from the standard editions of the six books and the Muwatta, with gradings as recorded there; the English is our own rendering. Spotted a mistake? Tell us.