Ethical banking

From ethical savings and current accounts, to socially responsible investment opportunities – learn which products are available to you and how your banking choices can make a difference.

From ethical savings and current accounts, to socially responsible investment opportunities – learn which products are available to you and how your banking choices can make a difference.

Anelda Knoesen
From the Money team
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Posted 14 JUNE 2021

What is ethical banking?

Ethical banks are those that aim to have no negative impact on the environment and society. Some go further – investing in companies and charities that make a positive contribution to the world.

The model is popular with consumers who are concerned about how their money is used by banks and other banking services. High street banks and financial service providers are also increasingly aware of the importance of reputation, and many want to distance themselves from what they consider to be the questionable investments of their competitors

What makes a bank ethical?

There are lots of things a bank can do to be considered ethical. Largely, it consists of using the customer’s money to invest in worthwhile causes. This could include charities, but also other things like helping to tackle climate change with renewable energy and reducing fossil fuel emissions, or supporting human rights activism etc. If a bank makes strong efforts to have an overall positive impact on the environment or society, they can be considered ethical.

What are the most ethical banks in the UK?

Which of the UK banks are the most ethical is subject to opinion, but there are some banks out there that make a notable effort to ensure their investments have a positive impact.

Some banks were founded on their ethics, while others have introduced ethical practices over time. Some publish details of businesses they lend to; others have promised to cut ties with organisations that generate revenues from harmful industries.

There’s a number of institutions that champion fairness, and it’s useful to look at approval ratings when considering an ethical bank.

The Good Egg mark is dedicated to financial service providers that offer a good deal for people and the planet. Banks, insurance providers and mortgage lenders are assessed based on their environmental, social and customer impact. Examples of banks and building societies awarded the Good Egg mark include Triodos Bank and Ecology Building Society.

Organisations that haven’t applied for the Good Egg mark, but perform well according to their criteria, are also listed on the accreditor’s website. Examples include Nationwide, Co-operative bank and MetroBank.

The Ethical Consumer and B Corporation also recognise and award financial institutions that make a positive social and environmental contribution.

Which banks are partially ethical?

It’s all a matter of opinion, but there are generally considered to be some fully ethical banks, as well as those who are taking the right steps to become ethical, but aren’t quite there yet.

The Co-operative Bank for example, were actually considered an ethical bank, as they offered one of the first ethical bank accounts available in the UK. However, they were later bought out by a group of US hedge funds, which don’t operate in the same way. This makes it a slightly greyer area.

Some of the more modern, app-based banks are considered partially ethical, because they're highly accessible, convenient and also offer better currency conversion and international usage charges. So, while they’re not investing heavily in charitable or green causes, they’re looking after their customers well.

Should I open an ethical bank account?

An ethical current account can give you peace of mind that your money’s safe and you’re banking responsibly. Whether or not you open one is a matter of choice. Each bank has different principles, so it’s important to check that their values match your own.

Many have tried to improve their image with charity donations and community schemes, but haven’t necessarily become ‘ethical’.

If you’re looking to open an ethical current or savings account, do a bit of research around the bank’s response to issues that concern you – and look out for independent accreditation.

Are ethical loans and mortgages available?

If you’re looking to borrow money in a socially responsible way, check the products on offer from ethical banks. A growing number of positive impact loans are available in the UK.

You could also use peer-to-peer lending or crowdfunding to avoid banks making investments that don’t reflect your values.

There are building societies in the UK who specialise in mortgages for environmentally friendly properties. Their savings accounts also help to support sustainable building projects.

Credit cards with ethical banks

Many ethical banks in the UK don’t offer credit cards. For a lot of consumers, the fees on late payments and high interest rates might be considered irresponsible.

What other ethical financial products are available?

A number of investment services offer socially responsible investing portfolios, managed with performance and ethics in mind. These portfolios are often weighted towards businesses that conduct themselves in a fair and progressive way.

Fossil-free and climate aware funds are also available through ethical pensions. Providers often work with other sustainable investment funds to provide a socially responsible pension pot.

Current accounts with ethical banks

Most of the banks considered ethical do offer the standard products like current accounts, but some may charge fees to maintain the account. However, the recent growth in mobile and app-based bank accounts has changed the way people save and spend. These app-based banks have a number of ethical features, such as lower currency conversion and international spending fees.

For a different option, you could also go with an Islamic current account. While the name might suggest you need to be Muslim to apply for one, that’s not true. Better yet, Islamic bank accounts tend to be more ethical than others, because their providers avoid investing in things that violate Sharia law. These include things like gambling and alcohol.

Savings accounts and ISAs with ethical banks

If you’ve got money to save away and are considering a savings account or ISA, an ethical bank is a great way to support a better future. Not only will your money be working for you, but it’ll also be working to support others, as ethical banks will use the money to invest in good causes.

Credit unions

If you’d rather avoid the current accounts, savings accounts and ISAs on offer by the high street banks, credit unions offer a potential alternative to the traditional options. Credit unions are set up to connect people who are similar. This could include the business interests they want to pursue, which could include ethical investments. They offer most of the same money products as the big banks, but you can find one that supports the causes you’re passionate about.

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