Ethical banking: Do you know where your savings go and do you care?
From HSBC laundering drug money to the Barclays LIBOR rate rigging crisis, a number of scandals have engulfed the banking sector over recent years.
Now fed-up savers are now turning their backs on large institutions and a new breed of bank is stepping into the frame.
These ‘ethical’ banks want you to have more say over what happens to the money you save – and big lenders with questionable ethics to have less.
The Co-operative Bank – arguably once one of the UK’s best-known ethical lenders – may have dealt a blow to ethical banking in the UK with its raft of recent scandals and its ‘recapitalisation plan’, which transferred more than 30 per cent of the bank’s shares to a group of hedge funds.
However, plenty of ethical banks remain unscathed and consumers are just as eager to do business with them.
According to the Move Your Money Campaign, 2.4 million customers have switched out of the big banks since the 2008 financial crisis.
Research from Triodos Bank, which was ranked as one of the top three most ethical banks in the UK by Move Your Money, found more than a quarter of Brits are on the lookout for a more socially responsible investment option.
Patrick Crawford, chief executive of Charity Bank, has seen a similar trend with savings accounts. He said: “As private consumers have adopted a stance in the purchase of goods and materials aligned with their own values, increasingly that set of standards has been applied to how consumers look at financial services.”
Charity Bank is one of a number of institutions offering consumers the chance to save-either through cash ISAs or regular savings accounts – with organisations that are both transparent and supportive of the real economy.
For Charity Bank, the goal is to provide charities with loans. Ecology Building Society, another ethical lender, provides mortgages for sustainable building and renovation projects. For both organisations, complete transparency is key.
Anna Laycock of Ecology Building Society, said: “Transparency isn’t just about being clear on what you’ve done with the money, but also helping our members understand the factors that govern why we make the choices we do. It’s about building awareness.”
Dr Claire Guest, CEO and director of operations at Medical Detection Dogs, received a loan from Charity Bank in March of 2012. She said: “They took a huge interest in our charitable activities, watching what we did and providing a huge amount of support. They also had a genuine interest in our work.”
If you’re looking to put your savings to good use, Charity Bank and Ecology Building Society offer savings accounts. Both also offer ISAs, though due to high demand these products are temporarily closed to new investors.
Other ethical banks include Cumberland Building Society and the aforementioned Triodos Bank.
If you’re looking for an ethical place to park your money on the high street, Metro Bank received an “ethiscore” of 11 from Move Your Money – compared to HSBC’s score of 3 and a bottom-of-the-rung 1 for Barclays.
Crucially, the interest you earn will not necessarily suffer if you decide to bank ethically. Rates can be comparable, though ethical banks don’t consider interest rates their major value proposition to savers.
|Provider||Move Your Money “Ethiscore”||Standard savings account rate||Instant access cash ISA rate|
|Charity Bank||12||0.50 per cent to 0.70 per cent AER||1.5 per cent AER (closed to new customers)|
|Cumberland Building Society||12||0.20 per cent AER on balances over £100; 0.45 per cent AER on balances of £5,000 +||1.30 per cent AER|
|Triodos Bank||12||0.30 per cent AER for online savers||1.50 per cent AER, online access and 33 day notice period|
|Metrobank||11||1 per cent AER on balances over £100||1.65 per cent AER|
|Natwest||1||0.50 percent AER on balances under £25,000||1 per cent AER on balances under £25,000; 1.5 per cent AER on balances of £25,000 and above|
|Barclays||1||0.31 per cent on balances over £1; 0.46 per cent on balances over £10,000||1.29 per cent AER on balances under £15,000; 1.39 per cent on balances under £30,000|
Crawford said: “We don’t expect to compete on price with commercial banks-indeed, we hope to attract savers and depositors who seek to obtain a fair return but accept that we will not be a market leading player in the rates that they obtain. They support the objects of the bank and know that their deposits will be deployed in loans to social sector organisations.”
Laycock added: “We try to offer long-term value, but for a lot of people the rates we offer are just one part of the picture. It’s not the driving force. We also try to have long-term interest rates; they can become market leading, but that’s not what we’re looking for. We want to build a community.”
According to Catherine Every, who switched her business account from HSBC to Triodos Bank when her period of free banking came to an end, that community focus is evident in her day-to-day interactions with Triodos. She said: “When you phone them they answer. It’s a much more personal service. Switching is absolutely worth it.”
Huw Davis, head of personal banking at Triodos, said: “Now is a key time for many people to look at their savings and investments and to make changes where needed. Choosing an ethical bank for your ISA allowance can be a powerful way to be more responsible. And with the new ISA limits announced in last week’s Budget, this potential impact will soon be greater than ever. Together, small acts can bring about big change.”