I want an ethical account137 . . . but will I be worse off?

Q:

I am thinking about opening an ethical bank account. What are my options and will switching really make a difference? Also, will I have to accept lower rates and poorer service and online banking than the high street giants offer?

RV, Essex

A:

WHEN you deposit money with a bank or building society, it lends it out to other customers and businesses. You have no say over who your money is lent to. There is a risk that it could be used to fund things you may not be happy with.

Ethical banks make a point of not lending money to the most controversial businesses, such as weapon or gambling firms. Each ethical bank has a different set of rules that set out what types of company it will – and will not – lend to. Before choosing one, you will need to consider your own ethics and find an account that matches them.

There are several ethical banks and building societies in the UK and opening an account with one of them doesn’t have to mean taking a step backwards in terms of service and technology. However, if ethics are not your sole consideration when picking a bank, it makes sense to look at online reviews of different providers before making your choice. If in-person banking is important to you, your options will also be limited.

If you are looking for a new current account, you have a few options. Triodos Bank will only lend your money to companies and organisations that are making a positive social, environmental or cultural impact. You can take a look at exactly who Triodos is lending to via a map on its website. Its current account comes with online and appbased banking as well as a biodegradable contactless card. However, it has a £3 monthly fee and no bank branches.

Alternatively, Cumberland Building Society offers a Plus Current account that has no monthly fee. It doesn’t invest its members’ money in stocks and shares, so that eliminates the possibility of unethical investments. Last year, it donated £100,000 to local community, educational and charitable projects.

Some people consider building societies to be a more ethical option than banks as they serve their members rather than shareholders and tend to invest in their local community. Nationwide is the largest that offers a current account.

One of the best-known ethical savings accounts is the Green Savings Bond from National Savings & Investments. The account invests your money in green projects chosen by the Government. These include building offshore wind farms, insulating homes, making public transport greener and speeding up the transition to electric vehicles. The bond locks away your money for three years and pays three per cent interest a year. This is fairly competitive – the most generous three-year bond on the market pays 3.81 per cent. However, now might not be the best time to lock your money away for multiple years. Interest rates are on the rise, and you could find your return looks less attractive in a few months’ time. For example, people who invested in the three-year Green Savings Bond last October are getting just 0.65 per cent.

Tandem Bank’s one-year fixed saver pays 3.26 per cent and may be a good alternative. The challenger bank was founded in 2014, but declared that it had become an environmentally friendly bank last year. It is a bit vague on what exactly that means, but by the end of 2021 it had handed out £230million to help people improve the energy efficiency of their homes.

If you are looking for an instantaccess savings account, you can get a best-buy rate of 2.1 per cent with Al Rayan Bank. While this is not a standard ethical bank, it does comply with sharia banking rules. This means your money can’t be lent to businesses forbidden by Islamic law. In practice that means no firms involved in alcohol, tobacco or gambling, but it could be lent to gas or oil companies.

If you are willing to give two weeks’ notice before you withdraw your money, RCI Bank’s 14-day notice E-Volve Savings Account is attractive. It pays 1.7 per cent – a best-buy on a short-notice account. Any money deposited is used to fund the manufacture of electric vehicles and charging points.

Finally, don’t forget about cash Isas, which allow you to earn interest tax free. Triodos Bank has an instant-access Isa paying 1.15 per cent – although that is considerably below the best-buy rate of 1.85 per cent.

Alternatively, sharia-compliant Gatehouse Bank has a one-year Woodland Cash Isa that is paying 2.5 per cent interest.

‘Your money is invested in green projects’

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