Can you bank ethically in Britain?
The reputations of Britain's high street banks are in tatters. They've been manipulating interbank lending rates (Barclays), accused of laundering money for terrorists (HSBC) and a technical glitch affected tens of thousands of customers (RBS and NatWest).
As each scandal has emerged, we've all looked for individuals to blame. Bob Diamond, Fred the Shred and evil bankers in general have all been vilified.
But it isn't all their fault; we've all been helping them. "If your money is held by these banks, it is effectively funding their operations," says Danielle Paffard, spokesperson for ethical banking campaign group Move Your Money.
As long as you continue to leave your money in accounts with these banks you are, to an extent, complicit in their actions. When you deposit money in a savings or current account, that money doesn't sit in a vault waiting for the day you want to spend it, the bank uses it to fund its investments and loans. Your money could be being handed out to tobacco firms; companies that test on animals; or even arms manufacturers.
If you don't like what a bank is doing, stop giving it your money. Instead, invest it with a bank you do like. That way, we can start to change the banking system. "If we all invested in a socially and ethically responsible way, we would have a socially and ethically responsible banking sector," says Paffard.
And you won't be alone in taking a stand. Charity Bank, an ethical bank intent on helping improve the UK's social landscape, has seen a 200% increase in new savings accounts in the first half of 2012, compared with the same period in 2011.
How do I go about ethical banking?
There are several 'good' banks out there. The easiest way to reward the good banks is to stick your savings in one of their accounts, that way you can help fund their ethical projects. For example, if you place your savings with Charity Bank, your money will help fund its loans, and it only lends to charities and social enterprises with a positive social purpose. While you get a reasonable rate of interest you can also know you are helping your local community, rather than lining the pockets of the banks' executive boards.
Charity Bank is also a charity itself so it doesn't have to worry about making a profit for shareholders but focuses on its social goals. "We measure our success in terms of people we've helped rather than balance sheets," says Mark Howland, spokesperson for Charity Bank. And helping your community doesn't have to come at a huge cost to you either, as Charity Bank offers an ISA paying 2.05%. It's not a great rate but it doesn't include a bonus so you won't have to worry about moving your money in a year's time.
For a better rate, but still with the warm, fluffy feeling that comes with banking with a nice bank, try Triodos. Its mission is to make money work for positive social, environmental and cultural change, so it only lends money to people and organisations that are making a positive impact in those areas.
Triodos and Charity Bank are also transparent about who they lend to, so you can check up on them if you are so inclined. The downside to Triodos is that it doesn't have any branches in the UK so you will have to manage your money online, by phone or by post. But in return for that minor inconvenience you can get a 90-day notice ISA paying 2.5% – just be aware that does include a 0.75% 12-month bonus.
But is my money safe?
Triodos is covered by the Dutch deposit guarantee scheme up to €100,000 per person, while Charity Bank is covered by the Financial Services Compensation Scheme up to £85,000 (£170,000 in joint accounts), making most peoples' cash guaranteed in the unlikely event the banks fail. But if you would prefer to keep your savings with a well-known bank then you can, and still bank somewhat ethically.
The Co-operative Bank, Smile and Britannia are all part of the Co-operative Group, which is the most ethical of Britain's high street banks. It is a mutual business, which means it is owned by more than six million of its own consumers, so no fat cats expecting big bonuses.
It has also got detailed public policies on who it will and won't lend to, covering seven human rights areas, five environmental areas, four international development areas and five animal welfare issues. For example, it will not lend to companies that engage in animal testing for cosmetic or household products or their ingredients or businesses that are involved in assisting to arm oppressive regimes.
The Co-op is not quite as ethical as Triodos and Charity Bank for two reasons. First, it doesn't solely focus on lending to charities and socially or ethically positive companies, although it does try not to lend to utterly evil corporations.
Second, it is part of the wider Co-op group, which includes the supermarket. As the Co-op supermarket sells factory-farmed meat and tobacco products, this may affect some people's opinion of the bank's moral stance.
But on the upside, the Co-op is the only one of the ethical banks to offer current accounts to its customers, so you can conveniently switch your everyday banking as well as your savings accounts to a bank that won't lend money to the devil in return for a big, juicy cheque.
The London Inter-Bank Offer Rate is the rate at which banks lend to each other over the short term from overnight to five years. The LIBOR market enables banks to cover temporary shortages of capital by borrowing from banks with surpluses and vice versa and reduces the need for each bank to hold large quantities of liquid assets (cash), enabling it to release funds for more profitable lending. LIBOR rates are used to determine interest rates on many types of loan and credit products such as credit cards, adjustable rate mortgages and business loans.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
An account opened with a clearing bank (few building societies offer current accounts) that provides the ability to draw cash (usually via a debit card) or cheques from the account. Some pay fairly minimal rates of interest if the account is in credit. Most current accounts insist your monthly income (salary or pension) is paid directly in each month and they offer a number of optional services – such as overdrafts and charge cards – which are negotiable but will incur fees.