There is a trend nowadays towards improving ethics in the world of business and the banking industry is no exception.
Over the course of this article we’ll explain what ethical banks are and whether or not choosing to keep your money with one would be a good idea.
In This Guide:
- What is ethical banking?
- What makes a bank ethical?
- Which UK banks are ethical?
- Partially ethical banks
- Ethical banks with savings accounts and ISAs
- Ethical banks with current accounts
- Building Societies
- Credit Unions
What is ethical banking?
Ethical banking is a way of continuing to carefully manage your own finances, whilst making sure you’re not unwittingly supporting unsavoury industries in the process.
We often forget that where we store our money has consequences beyond our own saving potential; banks use our earnings to make themselves, and sometimes their customers, richer by investing in various industries. Unfortunately, this often means large amounts of money being funnelled into businesses operating in, for example, the tobacco, oil, or arms industries.
Ethical banks are defined essentially by their refusal to invest in environmentally harmful or otherwise unethical industry. They are still banks though, and many protected by the same legislation as the big players. The difference is that you can be more certain that your hard -earned cash is not supporting businesses you don’t agree with.
What makes a bank ethical?
Ethical banking is not actually a strictly defined term, in that it doesn’t immediately describe the practice guidelines of a bank. It’s more of a term used to describe what a bank doesn’t do. Ethical banks don’t invest in commodities like oil, tobacco, or weapons, or in businesses whose services might be considered harmful to society, like casinos.
Typically, a so-called ethical bank will use its customers’ money to invest instead in sectors like green energy, and in projects that benefit local communities. Other ethical banks are more focused on transparency and excellent customer service than reshaping investment practices, but are still considered ethical.
With a definition as loose as this, it can be difficult to know where to turn. But don’t worry, we’ve got some pointers.
Which UK banks are ethical?
There are actually a surprising number of suitable options when it comes to (broadly) ethical banking in the UK. What’s more, all except for Revolut are protected by the Financial Services Compensation Scheme (FSCS), which safeguards your money in the event that your bank fails. It’s worth noting that each of these banks is considered ‘ethical’ for slightly different reasons. For ethical current accounts that strictly fit the description above, Triodos and Starling are your best bets.
Triodos started back in 1980 with the expressed aim of funding enterprises that benefit the public and the environment. It regularly tops out lists of ethical banks in the UK, and it’s not hard to see why.
They refuse to invest money in the following commodities or industries:
- coal and other fossil fuels,
- arctic drilling,
- arms and military technology.
They also publish the details of each investment they do make on their website in the name of total transparency.
They offer current accounts (at £3 per month), savings accounts, investment management, business accounts and charity banking.
One of the best app-based banks around, Starling began managing business accounts only, but now offer their customers a current account service.
Like Triodos, they expressly avoid fossil fuels, mining, arms and military, and instead invest in “government securities and other high quality liquid assets”.
Since they’re a paperless, branchless bank, their carbon footprint is significantly lower than some of their competitors. They also use Amazon Web Services (AWS) in Dublin to host their cloud storage, which is carbon neutral.
Charity Bank doesn’t offer current accounts, but does offer savings accounts and loans. If you set up a savings account, the money you store away is used to fund loans given out to charities and social enterprises.
Ecology Building Society
Ecology Building Society is the UK’s only mortgage provider dedicated to environmentally sound home investment. They don’t offer current accounts, rather they lend money to those wishing to make green home improvements or build energy efficient houses.
They also have a range of savings accounts, including a standard saver account paying 1.75% interest per year; an easy access account with 0.85%; an ISA with 1.1%; and a 90-day notice account with between 1.00-1.45%.
Partially ethical banks
The Co-op offered arguably the first ethical bank accounts in the UK when they launched. While they still offer current accounts, and are more ethical in their investments than many other high street banks, in 2013, Co-operative Bank was bought out by a network of US hedge funds. It is therefore debatable whether or not they still count as strictly ethical, based on the criteria above.
Another of the popular app-based banks, Monzo doesn’t quite fit in the “ethical banking” category in terms of its investment interests. However, the convenience and accessibility of the app, and the fact that you can use it abroad without charge, make it more friendly than most!
Revolut is much like Monzo in that it is an app-based bank whose main focus is on low-cost currency conversions and ease of use. It’s worth including in this list because it’s important to note that it’s not covered by the FSCS. Despite this, it’s still a hugely popular service with enviable ratings and customer service feedback.
Ethical banks with savings accounts and ISAs
If you’re looking for a suitable ISA or savings account, and you have a relatively sizeable chunk to store away, it’s a great idea to look for an ethical bank. That way, you can be sure your money is being put to good use while you sit back and (hopefully) watch it grow.
You’re best off going with Triodos, Ecology Building Society, or Starling Bank for this type of service.
Ethical banks with current accounts
Most of the ethical banks provide current accounts, though some (like Triodos) do charge monthly for this privilege. If you’re looking for something easy access and cost free, it’s best to look at the app-based banks like Starling. App-based banks tend to have very user friendly interfaces, tracking your expenditure and dividing it into categories (food and drink, travel etc). That way you can keep track of how much you’re spending and where!
Building Societies are often considered ethical, for the plain fact that they do not answer to shareholders, like banks do. Instead, profits go back into the business itself, benefitting savers and borrowers. This doesn’t mean that the business practices (meaning where they invest) is always “ethical”, however, though regulations do restrict how much building societies can invest in some industries.
That being said, as well as the Ecology Building Society, Nationwide and Cumberland are often cited as suitable alternatives to big banks. They offer a wide range of services from savings to mortgages, but shouldn’t necessarily be considered particularly “ethical”.
Credit Unions can be a great alternative to mainstream banking if you want to be more mindful about how money moves around the world, and they operate much like Building Societies.
Credit Unions are co-operatives formed by a people who have something in common, ie. location, employer, business interests etc. They tend to offer a range of savings accounts, current accounts and loans in the same way a typical bank would, but the money is less likely to come from or contribute towards unsavoury industries.
Check out www.findyourcreditunion.co.uk for more information.