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The banks offering ethical current and savings accounts

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06/07/2015
Despite significant efforts by government to regulate and control the behaviour of UK banks in the years following the financial crisis, some consumers remain concerned about the culture and politics of the ‘big four’ institutions - Barclays, HSBC, Lloyds and RBS.

As a result, according to campaigning group Move Your Money, over 2.4 million consumers have switched from the quartet to an ethical alternative since 2008. More still may be interested in moving. So where should they go?

Ethical current accounts

For consumers on the hunt for ethical current accounts, few options are available.

Co-operative Bank is perhaps the UK’s most renowned ethical bank. In 1992, it became the first to introduce an ethical policy, which prohibits the bank from investing in key “unethical” areas, and aims to actively promote animal and human rights, and environmental preservation. As of yearend 2014, Co-operative Bank had declined over £1.2bn worth of investment applications, as applicant businesses have fallen foul of its ethical requirements.

However, the institution’s ethical bank status has been called into question following its emergency recapitalisation by US hedge funds in 2013, after a £1.5bn shortfall was identified in the bank’s balance sheet.

Even former chief executive Peter Marks is sceptical of the organisation’s contemporary ethical banking credentials, telling a Treasury select committee in 2013 that “hedge funds are there to maximise profit, that’s what their sole purpose in life is…to be truly ethical you cannot do that.”

Move Your Money, an organisation, which rates banks according to their ethical standing, currently scores Co-operative Bank 40 out of 100.

However, Co-operative Bank is still the only high-street current account provider with an ethical policy enshrined in its constitution. Other ethical organisations, such as Charity Bank and Triodos, only offer savings accounts.

For consumers who wish to avoid Co-operative Bank, there are some alternatives, including Al Rayan (formerly the Islamic Bank of Britain), the UK’s sole Sharia-compliant bank.

Al Rayan is prohibited from investing customer deposits in unethical industries (e.g. alcohol, defence, gambling, pornography, tobacco), and eschews modern financial products (e.g. futures and options, and derivatives), instead placing money in traditional physical assets such as property (both residential and commercial) and commodities. Current account holders receive no interest, but pay nothing for the account – although its savings accounts can offer market-leading rates of return (see below).

Others may be interested in banks that adopt an ethical approach in respect of their customers. Leading challenger bank Metro Bank arguably fits this bill. Since its creation in 2010, the bank has received few fines or complaints and it scores highly in the rankings of consumer advocacy group Fairer Finance, with its ratings for customer satisfaction, complaint handling and transparency the highest of any UK bank.

As part of the bank’s customer-centric philosophy, it adheres stringently to an internal ‘Savings Promise’. Metro Bank never cuts a customer’s rate without informing them in advance, and automatically upgrades them to better rates if and when they become available.

As revealed by YourMoney.com in February, many savers have had their interest rates cut in the past three years, often without being informed by their bank – collectively losing £4.7bn in the process. Banks then use the savings made by these cuts to cross-subsidise attractive rates and cash offers to new customers.

“We firmly believe that banks should be obliged to let customers know personally about every rate change, and at the same time, inform customers of any better suited products available to them,” says Craig Donaldson, CEO of Metro.

“Treating customers fairly must come first, and in an industry where mistrust is rife, we must be committed to ensuring fair treatment for savers.”

One downside is that Metro Bank branches are geographically concentrated in the South East – while the bank is slowly expanding, accounts cannot be opened online. Ethical consumers outside this area will have to look elsewhere.

Savings accounts

For savers, a number of ethical savings accounts are available.

As previously noted, Al Rayan offers savers returns that are among the highest on the savings market. However, these are not rates of interest – rather, in compliance with Sharia financial principles, they are “expected profit returns” (EPR) and unfixed. Since the bank’s creation, EPR have always been achieved, and in some cases exceeded – but past performance is not indicative of future results, so savers should remain wary of this distinction. Its savings accounts pay up to 2.6%.

Triodos invests in organisations that offer a positive environmental or social impact. As of 2014, it has financed over 370 environmental projects in Europe. Consumers interested in internal culture may be attracted to Triodos’ workplace policies – its management team is 40% female, no executive bonuses are paid, and the ratio between the highest and lowest salary at Triodos is fixed below 10:1. Details of all the bank’s investments are also published on the company’s website. Its savings accounts and cash ISAs pay up to 2.3%.

Ecology Building Society lends to eco-builds, communal housing and restoration projects. Following the financial crisis, Ecology paid some of the highest savings rates on the market. In 2013, these accounts were closed to new members due to overwhelming demand. While a number of savings accounts are still available (easy access, 90 days’ notice, regular), rates are capped at 1%.

Charity Bank lends exclusively to charities and social enterprises. According to the organisation’s own research, many charities struggle to secure loans from high street banks, either having applications refused outright, or being offered terms prohibitive terms. Like Ecology, its highest-paying accounts were closed in 2013 due to demand – although it does offer an under-16 savings account (Small Steps) that pays 2%.

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