Banks have been mired in scandal over the last decade. The 2008 financial crisis has been followed by countless investigations and fines. Big banks have variously been caught out for mis-selling products, violating sanctions and manipulating prices of gold, silver, currencies, and libor interest rates.
Not surprisingly, headlines have been filled with ire over banks’ unseemly behaviour, including excessive pay, bonuses, and tax avoidance.
At the same time, the last decade has seen a growing trend for ethical consumption and holding businesses to account. Sales of ethical products grew 8 per cent last year, while ethical investment grew 9 per cent to £13bn, according to the Ethical Consumer Markets report.
Less well known but no less important is ethical banking. Money is central to society, and where people choose to store their cash has an effect on how banks ultimately behave.
“If you look at banking over the last decade there are serious questions that have been raised about the purpose of certain areas of banking,” says Huw Davies of Triodos Bank.
“We stand back and say ‘what are banks for? And what are we actually using people’s savings for?’”
Read more: Six of the best challenger banks
WHO DOES YOUR BANK LEND TO?
Banks use the accumulated savings from all their customers to lend money and finance projects. They make money from loans, and while most banks lend to individuals through mortgages and personal loans, often the bigger money is to be made from funding businesses all over the world.
When deciding who to lend to, most banks will look solely at the risk-reward profile of the deal. The ultimate social and environmental impact of the project they’re financing or kind of business they’re helping to grow doesn’t figure in the assessment.
Often banks are involved in areas which some people find ethically contentious. The UK’s big five banks are Barclays, HSBC, Lloyds, RBS and Santander, which also own brands First Direct, M&S Bank, Halifax and NatWest. Altogether they are home to around 80 per cent of all current accounts in the UK.
But RBS and HSBC have made loans to a number of nuclear weapons companies, for example, according to research from ICAN. The rest of the big five are also the biggest investors in companies causing climate change, according to Ethical Consumer.
Ethically-focused banks aim to lend to ventures which make a positive impact on society. They come up with a set of principles, usually with annual surveys of their customers about issues that matter to them.
An ethical bank will refuse to finance companies in dubious areas – The Co-operative Bank claims to have turned away £1.4bn of business since 1992. It has made a commitment not to provide banking to the fossil fuels industry, and has campaigned against problems as diverse as landmines and domestic abuse.
WHICH BANKS TO TRY
Triodos Bank is the best of the bunch. It has been in the UK for over 20 years and operates in five European countries. It openly displays the loans it’s made with customers' money on its website (most banks won’t disclose this, saying loans are a private transaction).
There are dozens of businesses across the country which have been given loans, including well-known brands Yeo Valley organic yogurt and Neal’s Yard skincare, as well as everything from renewable energy projects to farming, technology and housing ventures. The bank is a leader in ethical savings and is particularly good with personal investments.
Read more: How to get started with ethical investing
Among the best ethical current accounts is The Co-operative Bank, as it’s giving new customers a free £150 for switching over. The bank also runs a reward programme which pays up to £5.50 a month (over £60 a year) as a cash bonus for doing ordinary things with the account such as paying in a salary, using online banking and paying by debit card.
It’s a small amount but it’s worth thinking of the monthly bonus as an interest payment, the kind of top-up that was easier to find when bank interest rates were much higher.
Read more: Free cash from banks just for switching
ACCOUNT WITH EXTRAS
Although it’s not an explicitly ethical bank, the Ethical Consumer report highlights Metro Bank as the one which ranks highest on its scorecard. That may be down to its newness – the bank only launched six years ago, but is swiftly making inroads into the market, with 40 branches across London. All of these have longer opening hours than a traditional bank.
Second in line is Nationwide – again, not an overtly principled business but one which is rated highly by Ethical Consumer. Its current account, the FlexAccount, comes with free annual travel insurance for Europe, and it also has a three-month interest free overdraft.
For savings, Charity Bank is an option. It’s been around for nearly 15 years and as its name suggests, it uses funds to lend money to not-for-profits and social enterprises. It has a range of savings accounts and Isas open to individuals and children, all of which pay different rates of interest depending on how much is deposited and how long it is locked away for.
HOW TO SWITCH
The government has launched a special system to make it easier to switch a current account from one bank to another.
It’s called the seven-day switching service and means that after the forms are filled in, the onus is on the new bank to shift all incoming and outgoing payments to your new account. This includes direct debits, bill payments and incoming salary and pensions payments. They’ll also close the old account for you. See more at the official website, Simplerworld.co.uk.