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. As long as you continue to leave your money in accounts with these mainstream banks, ethical banking proponents argue that 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. 

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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, an ethical bank intent on helping improve the UK's social landscape, 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.  And helping your community doesn't have to come at a huge cost to you either, as Charity Bank offers an Isa paying 1%. It's not a top rate but it's decent enough with interest rates at all time lows. Plus, it doesn't include a bonus so you won't have to worry about moving your money in a year's time.

Another option is Triodos Bank, though its cash Isas have lower rates. This bank's 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 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 £75,000 (£150,000 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 five 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.

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. At the moment it is offering a £150 incentive for new customers. 

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It’s not all about rates. In the five years since the Northern Rock crisis, Charity Bank has bucked the banking trend, growing its deposit book by more than 200 per cent and its lending by more than 300 per cent. This deposit growth has enabled Charity Bank to increase its lending to charities and not-for-profit organisations at a time when the charity sector has struggled to raise finance from traditional sources.
Charity Bank’s impact is considerable: 70 per cent of projects funded state that they would not have gone ahead without a Charity Bank loan, while organisations supported by Charity Bank have helped an estimated 3.5 million people.

In five years, Charity Bank has not only moved the concept of banking forward, it’s moved ethical banking forward too. Ethical banking used to be ‘We won’t fund x and y.’ Your choice was  either you put your money in a black hole and didn’t think or care about what it was doing or, at best, you stipulated what you didn’t want it to do. But Charity Bank has developed a powerful alternative. If you have money to save and you also want to make a difference in society, you can put it in Charity Bank. You will get a return, you will benefit charities and communities and you'll get all your money back at the end.