Can ethical banks offer a realistic alternative?
There's hardly been a better time to switch to a financial institution where you can see your money doing some good, reports Simon Read report
Fed up with the dodgy or incompetent practices of your bank? There are alternatives, firms which promise to do business ethically, and use your cash to help the world, rather than simply bolster their own pockets.
This week they've reported a massive increase in the number of new customers, presumably fed-up people switching from Barclays or NatWest. Co-operative Bank, for instance, said that there's been a 25 per cent increase in online current account applications in the past week.
The ethical bank Triodos reported a 51 per cent increase in online account applications over the past week and said it opened three times as many UK accounts as usual.
Mutual building societies have also benefited from the disillusion with banks, with the Building Societies Association claiming a 30 per cent increase in inquiries.
But are these organisations capable of providing you with the service you expect? And do they even match your own expectations of ethical or green behaviour? After all, there's no point in switching only to discover that their practices are as loathsome as the bank you're escaping from.
Here we look at the alternatives to the high street banks. We examine their ethical credentials – which may or may not match your own aims – and look at the accounts they offer.
The most credible of all the ethical alternatives, as it already offers the full range of current accounts, mortgages, loans, credit cards and savings. It also has a decent branch network, with almost 350 Co-op and Britannia branches across the country.
And that could be bolstered to nearer 1,000 branches if it successfully snaps up around 650 branches that Lloyds Banking Group is being forced to sell. If it goes through – and the process is still not confirmed – the Co-op really would join the ranks of mainstream institutions as a credible rival to the banks.
But how good are its products? "The fixed rate savings on offer are currently all top of the best buys," says Andrew Hagger of Moneynet.co.uk, and the writer of our weekly Money Insider column. "The range of credit cards are all very competitive and the bank has an excellent range of current accounts."
He says loan rates aren't so competitive, but Co-op Bank mortgages have always been well-priced, "not top of the best buys, but often in the top 10 per cent of products". In short, a competitive and pleasing range.
What about its ethical credentials? "We are the only high street bank to have a customer mandated Ethical Policy, which sets out who we will and won't do business with," the Co-op says.
More specifically it refuses to do business with arms manufacturers, those with poor labour records, and companies that develop high climate change emissions fuel.
Offers a range of savings accounts and other investments to give customers "a social and environmental return on their money, as well a decent financial return", according to UK boss Charles Middleton.
The bank claims to be sustainable, with "a mission to make money work for positive social, environmental and cultural change". It is very keen to tell savers what happens to their money and, frankly, reading some of their testimonials, does give a warm positive feeling.
But how do their accounts stack up? "Rates may fall short of the best buys, but some of the deals are still pretty decent," says Andrew Hagger. Triodos' three-year fixed-rate ethical bond, for instance, pays 3.25 per cent. In comparison, a market-leading Co-op deal pays 4 per cent.
"Do you care about how your money is being used?" says Charles Middleton. "We challenge consumers and bankers to consider the transparency of banking and really start to make a difference."
A bank that is also a registered charity? The Charity Bank offers savings accounts and then uses the cash to lend to charities, social enterprises and community organisations that find it difficult to get loans from the traditional banking sector.
"We want to put an end to apathy banking and get the public more involved in thinking about where their money's going and what it is doing," says Mark Howland of the bank.
However, using the bank will hit your returns, warns Andrew Hagger. "It offers a small range of savings products, but rates are low and less competitive than those on offer from Triodos," he says.
The charity cash ISA pays just 2.05 per cent, and requires 33 days' notice of withdrawal. On the other hand, you do get the knowledge that your cash is being used for good.
Ecology Building Society
It offers savings accounts and mortgages, and the chief executive, Paul Ellis, says: "We're driven by our mission to build a greener society through our lending." Mortgages are only granted, for instance, if the property delivers an environmental benefit.
But returns for savers are far from leading, says Andrew Hagger. "With a cash ISA at 2 per cent you can generate a much better return elsewhere," he says. "However if your focus is less on what's in it for you and more into caring for the environment, then you may be prepared to accept the trade-off of a smaller cash return."
The Ecology is a mutual, of course, and building societies have been pushing themselves forward this week as an alternative to banks. But apart from the obvious benefits of being owned by their members, few can offer much in the way of green credentials.
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
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