Taking interest to make up for loss of money’s real value
Question

                Money looses its buying power as much as life becomes more expensive. For example, if life becomes 2% more expensive, the buying power of a 100 dinar today will be 102 in a year’s time. What is the ruling if I deal with a bank just to keep my money’s buying power, i.e. receive interest that just makes up the loss of my money’s purchasing value?.
Praise be to Allah.
    Firstly: 

    Undoubtedly the ever-rising cost of living means that keeping 
    money will cause it to lose some of its buying power. Hence you should look 
    for Islamically acceptable ways of investing it. 

    Based on the risks involved in investment and the loss of 
    trust in investment companies among many people, some of them have resorted 
    to putting their money in riba-based banks and taking interest. This stems 
    either from ignorance of the fact that this is haraam, or from preferring 
    this world over the Hereafter. Putting money in riba-based banks is gravely 
    haraam, because it is riba, for which the one who consumes it, the one who 
    pays it, the one who writes it down and the two who witness it are all 
    cursed. It is the riba for which Allaah has issued a declaration of war and 
    divine wrath for the one who does it. 

    Allaah says (interpretation of the meaning): 

    “O you who believe! Fear Allaah and give up what remains 
    (due to you) from Ribaa (from now onward) if you are (really) believers.

    279. And if you do not do it, then take a notice of war 
    from Allaah and His Messenger but if you repent, you shall have your capital 
    sums. Deal not unjustly (by asking more than your capital sums), and you 
    shall not be dealt with unjustly (by receiving less than your capital sums)”

    [al-Baqarah 2:278-279]

    Muslim (1598) narrated that Jaabir (may Allaah be pleased 
    with him)said: The Messenger of Allaah  (peace and blessings of Allaah 
    be upon him) cursed the one who consumes riba and the one who pays it, the 
    one who writes it down and the two who witness it, and he said: they are all 
    the same. 

    And he  (peace and blessings of Allaah be upon him) said: 
    “A dirham of riba that a man consumes knowingly is worse before Allaah than 
    committing zina thirty-six times.” Narrated by Ahmad and al-Tabaraani; 
    classed as saheeh by al-Albaani in Saheeh al-Jaami’ no. 3375. 

    In fact depositing one’s money in these banks is a loan with 
    interest. The lender is the customer and the borrower is the bank, because a 
    loan means giving the money then taking something else in return. Calling 
    that a deposit (wadee’ah) is an obvious misnomer, because the wadee’ah is 
    kept as is and is not disposed of, such as putting money in a safety vault 
    box for example, where the money itself remains and does not change. But the 
    bank disposes of the money as one who owns it, with the commitment to back a 
    similar amount, and this is a loan. If it comes with a commitment to pay 
    interest, then it is a riba-based loan on which there is scholarly consensus 
    that it is haraam. 

    Imam Ibn Qudaamah (may Allaah have mercy on him) said:
    “Every loan in which it is stipulated that 
    something extra must be paid back is haraam, with no difference of scholarly 
    opinion. Ibn al-Mundhir said: [the scholars] are unanimously agreed that if 
    the lender stipulates that the borrower must pay extra or give him a gift, 
    and he lends him money on that basis, then accepting the extra payment is 
    riba. It was narrated from Ubayy ibn Ka’b, Ibn ‘Abbaas and Ibn Mas’ood that 
    they forbade every loan that brings benefits. End quote from 
    al-Mughni (6/436).  

    Ibn ‘Abd al-Barr said: Every 
    additional amount given in return for a loan or favour that benefits the 
    lender is riba, even if it is just a handful of animal feed. That is haraam 
    if it is stipulated. End quote.  End quote from
    al-Kaafi (2/359). 

    A loss in the buying power of money does not make it 
    permissible to stipulate interest which is the essence of riba. Rather the 
    loan should be repaid as is even if its value has decreased. 

    It says in Mawsoo’ah Fataawa al-Azhar, in a fatwa of 
    Shaykh Jaad al-Haqq, the former Shaykh of al-Azhar (may Allaah have mercy on 
    him) concerning the issue under discussion, which we will quote for the 
    benefit of readers: 

    Question: The questioner was given some investment 
    certificates of group (b) by his father as a marriage gift, and they are 
    still in his possession. 

    He is entitled to cash them in now and they have profits from 
    the time he kept them. 

    His question is: Are they halaal with their profits? 

    Please note that the cash value now with the profits is less 
    than their value at the time when they were bought and given. 

    He replied: The fuqaha’ of sharee’ah defined riba as being 
    anything that is added to wealth without anything in return.  

    Allaah has forbidden riba in many verses of the Holy Qur’aan, 
    the last of which to be revealed, according to a saheeh report narrated from 
    Ibn ‘Abbaas (may Allaah be pleased with him), is the passage in which 
    Allaah, may He be glorified and exalted, says (interpretation of the 
    meaning):  

    “Those who consume Riba will not stand (on the Day of 
    Resurrection) except like the standing of a person beaten by Shaytaan 
    (Satan) leading him to insanity. That is because they say: ‘Trading is only 
    like Riba,’ whereas Allaah has permitted trading and forbidden Riba. So 
    whosoever receives an admonition from his Lord and stops consuming Riba, 
    shall not be punished for the past; his case is for Allaah (to judge); but 
    whoever returns (to Riba), such are the dwellers of the Fire — they will 
    abide therein. 

    276. Allaah will destroy Riba and will give increase for 
    Sadaqaat (deeds of charity, alms). And Allaah likes not the disbelievers, 
    sinners.”

    [al-Baqarah 2:275-276]

    It is also forbidden in the hadeeth which was narrated by 
    al-Bukhaari, Muslim and others from Abu Sa’eed al-Khudri (may Allaah be 
    pleased with him) who said: The Messenger of Allaah  (peace and 
    blessings of Allaah be upon him) said: “Gold for gold, silver for silver, 
    wheat for wheat, barley for barley, dates for dates, salt for salt, like for 
    like, hand to hand, and whoever gives more or asks for more has engaged in 
    riba; the taker and the giver are both the same.” 

    Because these texts imply that riba includes all additions to 
    the money borrowed or deposited on the basis of a precondition for nothing 
    in return, the Muslims are unanimously agreed that it is haraam, following 
    the texts of the Qur’aan and the Sunnah. 

    Because the investment certificates of group (b) bring a 
    specified amount of interest, that is stipulated in advance in terms of time 
    and amount, they come under the heading of riba that is forbidden in 
    sharee’ah on the basis of these texts, as it is a loan with interest that is 
    stipulated in advance in terms of time and amount.  

    As for what is mentioned in the question about these purchase 
    certificates and their profits being less than their value at the time when 
    they were given to the questioner or at the time when they were bought, this 
    is not a valid justification for regarding this interest as permissible. 
    Imam al-Isbejaabi narrated in Sharh al-Tahhaawi that the fuqaha’ were 
    unanimously agreed that if money is not taken out of circulation, but its 
    value increases and decreases, the borrower must give what he took in terms 
    of amount so long as the type of money is specified (Risaalat Tanbeeh 
    al-Ruqood ‘ala Masaa’il al-Muqood min Rakhs wa Ghala’ wa Kasaad wa Inqitaa’ 
    by al-‘Allaamah Ibn ‘Aabideen (vol. 2, Majmoo’ al-Rasaa’il p. 
    58-67). 

    As this is the case, the nominal value of these certificates 
    is permissible, as it originally most likely came as a gift from halaal 
    earnings, as we assume that the believers are of good  character and 
    conduct. 

    As for the interest that was earned in accordance with the 
    system, it is riba which is haraam because it was specified, and it is not 
    permissible for the Muslim to benefit from this interest because it is 
    haraam earnings. He may take it and dispose of it in any charitable way such 
    as building mosques or hospitals or giving it to a poor or needy person in 
    the ways indicated by the Sunnah of the Messenger of Allaah  (peace and 
    blessings of Allaah be upon him) with regard to disposal of haraam earnings, 
    so as to free the Muslim of any responsibility before Allaah. 

    It is narrated in a hadeeth that Abu Barzah al-Aslami (may 
    Allaah be pleased with him) said: The Messenger of Allaah  (peace and 
    blessings of Allaah be upon him) said: “The feet of the slave will not move 
    on the Day of Resurrection until he is asked about his life and how he spent 
    it, his knowledge and what he did with it, his wealth and how he earned it 
    and how he spent it, and his body and what he did with it.” And Allaah, may 
    He be glorified, knows best. End quote. 

    Hence we say to our brother: You should either look for 
    Islamically-acceptable ways of investing the money, even if that is buying 
    goods which usually keep their value, such as land and gold and the like, 
    or  by being patient and seeking reward, and putting up with the loss in 
    value that results from keeping money. 

    Secondly: 

    It is not permissible to put money in a riba-based bank 
    except for the purpose of protecting it if there is the fear that it may be 
    stolen. In that case it should be put in a current account, not in a savings 
    account, so as to do the lesser of two evils. If interest is paid on it, 
    then you must get rid of it by giving it to the poor and needy or spending 
    it in the public interest, and it is not permissible for the owner of the 
    money to benefit from any of it. 

    We ask Allaah to help and guide us and you. 

    And Allaah knows best.