If you are unhappy with your bank, or are concerned about the impact you are making with your money, then it’s time for a change. In this guide you will learn how to find an ethical bank that suits your needs and standards.
Ethical banking – it’s a well-kept secret. Banking in more ethical ways is not something that a lot of us necessarily think much about.
Instead, we’ll compare the best interest rates on savings accounts, or hunt for the credit that we need for a big purchase. We’re more likely to take the advice of a mortgage broker on how to get the smallest repayments and lowest interest rates when buying a property.
But every time we put money into a bank, we’re investing in a company and trusting them to ‘do good’ with our hard-earned cash.
And yet, time and time again, household name banks prove to us that they’re corrupt at their core, interested in little beyond profit margin and their majority shareholders.
Just how bad can this get?
How to identify banks that don’t operate ethically
A lot of banks will take your money and invest it into industries and organisations that you might not be morally a-okay with. Fossil fuel, fur, tobacco, animal-testing and child-labour-employing companies, along with weapons manufacturers and traders, can all be great money makers for banks who don’t care about the dubious ethics.
In 2012, the Libor scandal involved a number of banks affecting finance interest rates around the world, when they chose to fix their figures in order to enhance their profits. UK bank Barclays were fined around $373m in total for their involvement.
Treatment of customers and staff
The UK’s Lloyds Banking Group were fined $36 million by the FCA in 2013. They were found to be pressuring their staff with pay cuts and demotion, unless they met specific targets. The targets involved mis-selling products to customers that they didn’t really need or want.
Numerous banks over the years have been found to be far too laidback when it comes to anti-money laundering measures, leading them to consequently have an active role. In 2012, HSBC were discovered to have been financing terrorists, pariah states, and Mexican and Colombian drug cartels for years.
Danish bank Danske were hit with a massive $258bn fine in 2018, after it was uncovered that the majority of the $221bn that passed through its Estonian branch was laundered money from the UK, British Virgin Islands and Russia.
Ethical banking: the principles and standards
An ethical bank, by contrast, should aim to have no negative impact on society or the environment. Ethical banks can also be known as a social, alternative, civic, or sustainable bank. The ethical banking movement includes some of the following principles:
Instead, you can expect an ethical bank to invest carefully in organisations that positively affect animal and/or human rights. Alternatively, they might invest in renewable energy resources or charities. It could be any other causes that are going to make our world a better place to inhabit too.
But how would you know where a bank is investing their money?
Well, many ethical banks have both a list of industries they promise not to invest in, and a list of specific businesses that they do invest with – ethical banks like Dutch bank Triodos. This move offers full transparency to the customer, something that a lot of us are really not used to. An ethical bank may take this visibility as far as publishing details of how their business is operated too.
Ethical banks don’t allow businesses with unethical blemishes in their pasts to become clients either.
Promoting good causes
An ethical bank could support and promote environmental causes that help to positively develop the world around us. They might also encourage social progression and local community life, by funding affordable housing projects, providing scholarships for students in nearby schools or sponsoring local community events.
Does a bank have a good reputation for dealing with customers? Have they ripped off customers in the past, and do they put profits before anything else? You shouldn’t be able to find any dirt like this on an ethical bank.
It’s true that they might make smaller profits because they have less choice on who they invest with, but you shouldn’t notice a difference in the interest rates or quality of product that they’re able to offer you.
Either way, an ethical bank should be able to give you control over how you manage your finances, and the empowerment of knowing what they’re going to do with the money that you invest with them.
An ethical bank’s practices may be designed to be more sustainable. For example, they might not offer paper billing, and they should aim to continuously lower their energy consumption.
You might choose to look for a carbon neutral bank, like Bank Australia, who have been able to boast this claim since 2011. They manage this by purchasing carbon offsets. Bank Australia also run on 100% renewable energy, so they’re not just buying carbon offsets as an excuse to pollute. You can read more about their efforts here.
How do you find an ethical bank?
If you’re in the UK, go on over to Ethical Consumer (amazing, not-for-profit, informative consumer website), and take a look under the ‘Money’ section.
If you’re elsewhere, and don’t know of a similar site for your country, do a quick Ecosia search (they’re a search engine like Google, but they plant trees each time you click the magnifying glass). Search for ‘ethical bank’ and then the name of your country.
Here are some of the main principles you need to consider:
Some people find that signing up with a religious bank fits well with their ethical priorities. For example, Islamic banks and banking products operate in accordance with Sharia law, which means money is generally viewed as a pure exchange. Borrowing money is only encouraged when considered necessary, a far cry from the banks which will gladly land you with debt that you can’t easily repay.
You cannot use money invested in an Islamic account to finance anything against Sharia principles, such as alcohol or gambling, and they also won’t charge transaction fees. Islamic banks and products are open to anyone, regardless of whether you’re Muslim or what religious beliefs you hold.
Along with the generally good investments of other ethical banks, UK-based Charity Bank is also owned entirely by charitable foundations, trusts and social purpose organisations. They offer loans and savings accounts, and have tons of ethical accreditations to their name.
Swedish Handelsbanken operate each branch of their bank, in six different countries, on a decentralised model. This allows each branch control over investments and priorities at a level that can more easily benefit local communities.
Some people choose to forget banks altogether, and set up with a building society or credit union instead. Profits are reinvested to help improve the service, rather than paid out to external shareholders who would stand to gain a lot of money. Customers’ savings are invested into the local economy.
Mutual societies also tend to be smaller than banks. And even Nationwide, the largest building society in the world, offer Ethical Consumer’s highest scoring Cash ISA, out of the 41 products they compared.
There are also building societies who specialise in loans and savings of a certain type. Ecology Building Society support the development of eco-friendly and sustainable buildings and communities in the UK.
Recommendations of ethical banks
Nowadays there are plenty of ethical financial institutions and here is a quick curated list so that you can research in your own timing:
- Good Money
- Starling Bank
- ICICI Bank
- Nationwide Building Society
- Metro Bank
- Yorkshire Bank
If you are still not convinced and want to dig deeper into the reasons why you should move to an ethical bank institution, we found this interesting interview to watch between the Ethical Consumer researcher Mackenzie Denyer and the finance expert Johanna:
Conclusions for ethical banking
The key is to try to align a bank’s ethics with your own when making decisions about switching accounts – there’s no universally ‘correct’ standpoint on banking practices and no ethical one-size-fits-all.
You could also find that your favourite option for banking ethically offers some of the products that you want, but not all. You might be able to open a fantastic savings account or ISA with that bank, but then find that they can’t offer you a current account with overdraft options, or a credit card.
Remember that improving one aspect of how you handle your money is better than doing nothing at all! Maybe you can mix and match products from more than one ethical bank or mutual society?
In a society where money talks, why not make yours work harder for you, towards causes that you care about?
Do you have any experiences with an ethical bank? Or more suggestions on things to look out for when choosing who to bank with? Leave a comment below!