Are green deals a gift or a gimmick?
There are two major global topics on everyone's lips at the moment: the credit crunch and the environment. Traditionally, these subjects didn't cross paths, but environmental concerns have been filtering through to the financial services industry for some years now and currently a range of products are on offer, from ethical credit cards to mortgages and insurance products that encourage consumers to adopt a more eco-friendly lifestyle.
Climate change is of course a very real concern and everyone needs to do their bit towards combating it, whether it's ditching plastic bags, insulating our homes or shunning gas-guzzling 4x4s.
But are these profit-driven companies truly contributing to positive change or are their green products simply a marketing gimmick?
Green mortgages are growing in popularity and they seem to make sense, as our homes account for 27% of all carbon dioxide emissions in the UK, according to the wildlife charity WWF. Among the handful of lenders that currently offer them are the Co-operative Bank, and the Norwich & Peterborough, Ecology, Hanley Economic, and the Teachers building societies.
There are two main elements to green mortgages - lenders contribute to climate-change schemes on your behalf, and offer loans for eco-friendly building projects or energy-efficient home improvements.
Climate-change schemes tend to support carbon offsetting measures, such as reforestation projects, to absorb the carbon dioxide produced by households and businesses. The Co-op Bank, for example, donates to the Climate Care programme for each mortgage it lends. Climate Care contributes to a number of projects, including replanting the Kibale National Park in Uganda. The bank donated over £279,000 in 2007, and claims that the resulting reduction in carbon dioxide offsets the emissions of its borrowers' homes by around a fifth.
The Norwich & Peterborough Building Society, meanwhile, offers two green mortgages: one for new homes with a Standard Assessment Procedure (SAP) rating of 100+ and another to make existing properties more energy-efficient. The building society also works with the Carbon Neutral Company to plant 40 trees in East Anglia and Lincolnshire on behalf of each borrower - a scheme that it claims will make your home carbon-neutral.
However, carbon offsetting is a complex area. Sceptics say simply planting trees is a short-term fix because when a tree dies, it rots and releases carbon back into the atmosphere. Studies have also found that a tree has to reach maturity before it absorbs just one tonne of carbon dioxide, while, according to EDF Energy, the average UK household emits 5.63 tonnes of CO2 every year.
"While we support charitable causes and carbon offsetting, they're not enough to make a mortgage 'green'," says Jenny Irwin, marketing manager at the Ecology Building Society. "They may sound good to consumers, but they have little positive environmental impact."
So, it's best to look out for lenders that support other initiatives, such as new technologies to help reduce carbon emissions rather than offset them. Climate Care, for example, also funds a number of projects in developing countries which aim to introduce energy-efficient alternatives to the wood-burning stoves traditionally used for cooking.
The other element to eco-friendly home loans - lending to specific green projects - is arguably more effective.
The Ecology Building Society, for example, provides mortgages for 'property recycling', such as renovations and conversions, and for new environmentally friendly properties. It will help with lending to renovate a derelict or dilapidated property, or to purchase a new home built from sustainable materials. You could otherwise struggle to secure a mortgage for such a project.
Of course, green or not, it's important to search the whole market and assess the suitability of a mortgage or loan before taking it out. You should look at a whole range of factors, including rate, arrangement and exit fees, and flexibility.
Interestingly, the Co-op Bank won the 2008 Moneywise Mortgage Awards in the remortgage and first-time buyer categories - so you can take out a competitive deal while doing your bit for the environment.
There are around 40 ethical credit cards in the UK, and like mortgages, the green element varies considerably, from contributing to charities and climate change schemes to offering discounts on environmentally beneficial purchases and managing accounts online to cut paper usage.
The cards on the market combine green and ethical causes, and the three main players are Barclaycard's Breathe card, American Express Red, and the Co-operative Bank, which offers a range of charity credit cards, in addition to its Think card.
Barclaycard Breathe offers a number of incentives to encourage greener spending, such as a reduced rate of interest on rail and bus tickets, a discount on bikes and accessories from Halfords, and discounts on green energy providers and Eurocamp holidays. It also promises to donate 50% of its profits from Breathe to PURE, a UK charity that invests in projects such as renewable energy plants and forest preservation, rather than reforestation.
But while it sounds good in theory there are doubts over the idea of linking donations to profit.
Michelle Slade, an analyst at Moneyfacts, warns that savvy cardholders who pay their balance on time will not be contributing to the PURE schemes: "By paying no interest, these customers will be loss-makers for Barclaycard, especially when you take into account the operational and administrative costs of running a card."
She adds that if you pay interest and carry your balance over each month you'll make Barclays a profit, which it can then donate to green causes - but only at the cost of hurting your own pocket.
The same can be said for other ethical and green cards where the average interest rate is a staggering 18.9%.
The Co-op offers a range of credit cards with links to different charities, such as Greenpeace, Shelter, Water Aid and Oxfam. There are three Greenpeace cards, with a range of APRs. The card is made of toxic-free plastic, and Greenpeace receives £15 for every account opened, and a further £2.50 if your account is used within six months. However, after that, just 25p of every £100 you spend is donated to the charity.
The Co-op's Think card has a lower APR for purchases from selected partners, including Ikea, thetrainline.com and Traidcraft. The first time you use the card, the bank makes a donation to Cool Earth to buy and protect half an acre of Brazilian rainforest.
However, while these are undoubtedly all good causes, if you go for one of the many cards offering introductory 0% rates on purchases and balance transfers, you can use the savings to donate to your chosen cause instead.
Green motor and travel insurance makes a lot of sense in theory as we pump out harmful emissions every time we drive or fly anywhere. But, again, the main green element of these products is carbon offsetting.
Climatesure is the insurance arm of Climate Care and provides travel cover through AXA Insurance. Climatesure calculates the CO2 from flying overseas for your holiday (based on gCO2/km) and pays for it to be offset by Climate Care. However, it comes at a cost and you are likely to be able to find sigificantly cheaper cover elsewhere. Read our article on finding the best travel insurance deals to find out how.
Of course, if you want to be truly green, you'd be better off driving in a more fuel-efficient way, switching to a more fuel-efficient car or reducing your mileage. Not only will this make a real difference to the environment, you will also benefit financially through savings on petrol, tax and insurance.
Green savings accounts may not offer earth-shattering returns, but they're among the better financial products for the environment.
Triodos, a small Dutch bank that only lends to businesses that contribute positively to the environment, has a number of regular and charity savings accounts, with rates of around 3%, rising slightly for its cash ISA. The bank makes donations on your behalf to organisations such as Amnesty and the Wildlife Trust. You can also opt to donate all or some of the interest to your chosen charity.
The Ecology Building Society also has a small savings arm that supports its environmental mortgage lending, including an Earthwise cash ISA. However, you might find slightly better rates from the Co-op Bank and its other brand, Smile.
The Co-op Bank has a strong ethical policy, which allows consumers to have a say in what type of companies it invests in. The current policy includes a number of ethical issues, including animal welfare - it has committed not to invest in any business involved in animal testing, intensive farming methods, blood sports or the fur trade.
So, all in all, while these accounts may offer lower returns, you know that your savings are going to a good cause rather than simply to boost the bank's coffers. To see how they compare to other products on the market, read our daily round-up of saving accounts and our daily round-up of ISAs.
You can also compare and buy saving products and ISAs on Moneywise - just click here to start shopping.
A load of Greenwash?
While green financial products do represent a small step forward in the fight against climate change, Jen Morgan, sustainable business manager at the WWF, says that the current measures are merely scratching the surface. "We're kidding ourselves if we think that largescale change is going to be delivered through providing non-PVC credit cards or planting trees to offset emissions," she adds.
Morgan believes that the Co-op Bank and Triodos are the only organisations with truly ethical policies, and that many of the current green financial products are leading consumers up the wrong path.
She advises: "In the same way as you can take action by buying fairtrade products, you can also ask your financial services provider: 'Where is my money going?' and 'When will I be offered a choice of product that makes a real difference to the planet?'"
In many cases, then, the green financial products currently available are neither the best for the planet nor your finances. While we need to put pressure on financial services to adopt truly ethical policies, in the short term it may be better to opt for the best-value deals and either donate your money to environmental charities instead, or simply try to make your own lifestyle a little bit greener.
Save money and the environment
Climate change can seem like an overwhelming problem, but if we all make small changes it can have an impact. Reducing the amount of energy you use on a daily basis not only cuts the amount of carbon dioxide you produce, it can also save you money.
1. Turn your thermostat down - reducing your room temperature by 1°C could cut your heating bills by up to 10%.
2. Is your water too hot? Your cylinder thermostat shouldn't need to be set higher than 60°C/140°F.
3. Close your curtains to stop heat escaping through the windows.
4. Turn off lights when you leave a room and don't leave appliances on standby or on charge unnecessarily.
5. If you're not filling up the washing machine, tumble dryer or dishwasher, use the half-load or economy setting.
6. Only boil as much water as you need (but remember to cover the element if you're using an electric kettle).
7. Be careful with water - fix dripping taps, turn off the tap while brushing your teeth, take showers instead of baths, and use a toilet brick - most water suppliers provide them free of charge.
8. Use energy-saving light bulbs - just one can save you £60 over the lifetime of the bulb as it will last up to 10 times longer than an ordinary lightbulb.
9. Invest in a water filter to save on buying bottled water, and ditch plastic bags in favour of reusable fabric ones.
10. Insulate your home - to find out if you are eligible for a grant, visit energysavingtrust.org.uk
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.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.
This is used to compare interest rates for borrowing. It is the total (or “gross”) interest you’ll pay over the life of a loan, including charges and fees. For credit cards where interest is charged at more frequent intervals, the APR includes a “compounding” effect (paying interest on interest). So for a credit card charging 2% interest a month (equating to 24% a year), the APR would actually be 26.82%.