Is SPY Halal? The 2026 Shariah Verdict for US Muslim Investors

The verdict in one line

SPY is not halal in its standard form. The SPDR S&P 500 ETF Trust (ticker SPY) is the oldest and largest S&P 500 fund in the world, with roughly $773.56 billion in net assets as of June 22, 2026. It holds all 500 names in the S&P 500 — and that is exactly the problem. Around 11.81% of the fund sits in the Financials sector: conventional banks, insurers, and lenders whose core business is charging and earning interest. Under the AAOIFI Standard 21 screen, any fund or company drawing more than 5% of revenue from interest-based finance is non-compliant. SPY clears that threshold by more than double, before you even open the debt and interest-income ratios.

If you want the same large-cap US exposure inside the screen, the two funds US Muslim investors actually use are SPUS (SP Funds S&P 500 Sharia Industry Exclusions ETF, 0.45% expense ratio) and HLAL (Wahed FTSE USA Shariah ETF, 0.50%). Both take a large-cap US universe and run it through a Shariah filter, removing the banks, the insurers, and the over-leveraged names.

What SPY actually holds

SPY is a passive fund — it does not pick stocks, it mirrors the S&P 500 by market-cap weight. The top of the fund is tech-heavy, which is why people often assume it must be screen-friendly. It isn’t. The index also carries the entire US banking and insurance complex. Here are the current top holdings and the sector map that matters for the screen, pulled from the issuer (State Street) as of June 22, 2026:

Notice what is missing from that top-six list: a bank. The mega-caps at the top look clean, and that is why the “SPY is mostly tech, so it’s probably fine” argument is so common. But the screen is not run only on the top 10. It is run on the whole fund — and the whole fund includes JPMorgan, Bank of America, Wells Fargo, and Berkshire Hathaway (a massive insurance operation), which together with the rest of the Financials sector make up that 11.81%.

Running the AAOIFI screen on SPY

Shariah screening is a two-stage test. We apply the AAOIFI Shari’ah Standard 21 thresholds — the strictest of the mainstream methodologies. Here is how SPY scores on each gate:

The very first gate settles it. The S&P 500 holds conventional finance well above the 5% business-activity ceiling, so SPY fails as a whole regardless of how clean its tech mega-caps look individually. A screened fund handles this by excluding the non-compliant sectors outright and then dropping any remaining names that breach the debt or interest-income ratios — which is precisely what SPUS and HLAL do and SPY does not.

What most people miss

The single biggest misconception is that SPY is “mostly halal” because only ~12% is in banks, so you could just buy it and donate a small percentage to charity. That is not how the screen works. Purification handles incidental interest income inside an otherwise-compliant holding — the few dollars of interest a tech company earns on its cash balance. It does not cleanse a deliberate ownership stake in the business of interest itself. Owning JPMorgan through SPY is owning a bank whose entire model is lending at interest; no amount of after-the-fact charity converts that into a permissible holding. Screening removes the holding; purification only cleans the residue on what survives.

The second thing people miss: the index is self-cleaning in the wrong direction. As Financials have rallied, their weight in the S&P 500 has drifted up over the past few years. You do not control that drift inside SPY — you are buying whatever the market-cap weighting hands you, banks included. A screened fund rebalances to stay compliant; SPY rebalances to stay representative of the market, compliant or not.

Third: people assume the cost of going halal is huge. It is small. SPY’s expense ratio is about 0.0945% (roughly 0.09%). SPUS is 0.45% and HLAL is 0.50%. On a $50,000 position that is the difference between about $47 a year (SPY) and $225 a year (SPUS) — roughly $178 more annually for the screen. Real, but not the deal-breaker most people imagine, and the screened funds have delivered competitive large-cap returns because they overweight the same tech mega-caps that drive the index.

The compliant swaps, side by side

If you currently hold SPY and want a Shariah-compliant large-cap US equity position, here are the real options and what each costs:

For a near-identical S&P 500 experience, SPUS is the cleanest one-for-one swap — it starts from the same index and subtracts the non-compliant pieces. HLAL casts a slightly wider US net. The Amana funds (AMAGX growth, AMANX income at 1.01%) are actively managed and have the longest US Islamic-fund track record, but you pay for the management — name that trade-off before choosing them over a low-cost screened ETF.

If SPY is your 401(k) default

Many US workers find SPY (or an S&P 500 index fund) is the default option in a 401(k), with no halal fund on the menu. The 401(k) wrapper is permissible — the problem is the holding, not the account. Your options, in order of preference:

• Check whether your plan offers a self-directed brokerage window (sometimes called a brokerage link). If it does, you can buy SPUS or HLAL inside the 401(k) directly.
• If there is no halal option and no brokerage window, route new retirement savings to a Roth or Traditional IRA at a broker like Fidelity or Schwab, where you can hold SPUS, HLAL, or Amana freely.
• Avoid the plan’s default target-date and bond funds — those hold interest-bearing bonds (riba) and are non-compliant even if an equity sleeve looks acceptable.

The disclaimer that belongs on every ruling

This applies the AAOIFI Shari’ah Standard 21 screen to publicly available holdings data as of June 22, 2026. Screening is a methodology, not a religious ruling — fund holdings change quarterly, scholars differ on gray areas, and this is not a fatwa. Verify the current screen via Musaffa or Zoya, and consult a qualified scholar for your situation.

The decision lever

The choice is not “halal or high returns.” SPUS and HLAL hold the same megacap-tech engine that drives the S&P 500, minus the banks — so the question is just whether you’d rather pay ~0.09% to own interest-based finance or ~0.45% to screen it out. For a Muslim investor, that is a settled trade. Move the SPY position to SPUS for the closest S&P 500 match, or HLAL for broader US coverage, set up automatic purification using the issuer’s quarterly calculator, and keep the same account — the Roth IRA or 401(k) was never the problem.