Wednesday, 6 January 2016

Ethical Banking and Saving

I generally seek to have a positive effect on the world where I can, particularly where it’s easy to achieve with only small changes in behaviour. I have a bank account. I have a savings account. Right now, the profits of these largely go to banks who, while serving a useful function, aren’t necessarily my dream beneficiaries.

I spent a while trying to find some good places to put my money, and figured I might as well write up my research in case it’s useful to anyone else. I was definitely trying to solve my own problems, so I should probably describe my aims: I live in the United Kingdom (in London). I have a current account, which I largely use for direct debits and to pay off a credit card with which I buy most things. It is always in credit. I have a few tens of thousands of pounds of savings. My life is fairly unstable, so I want relatively easy access to those savings (instant, or at most three months notice), in case I decide to move country, or buy a house, or start a company, or who knows what. I don’t particularly care about making the most interest I could make (I’m not a huge fan of making money from having money), but some would be nice, and more would be nicer. I don’t want an ISA. I travel a lot, and have a lot of foreign transactions. So practically, what I’m looking for is:
  • A place to put tens of thousands of pounds of savings with at most 90 days of notice to withdraw (with probably some in instant access).
  • A current account which handles me traveling well, offers a debit card, direct debits, and good online banking.
With that established, the next question is, what are my ethical aims? What are the available families of ethical ideologies? I have found only a fairly small handful of “ethical” banks (they’re not all banks, but I’m going to use that term broadly), and many fewer who offer current accounts. The broad families seem to be:
  • Banks who only lend people/companies/groups who they judge to be making an actively positive influence in the world (Triodos Bank, Ecology Building Society, Charity Bank, Shared Interest). I call these “whitelisters” because they look for actively good things which they approve of, rather than invest anywhere that isn’t negative (“blacklisting”).
  • Banks who lend to local communities, who don’t necessarily vet their borrowers for ethics, but whose target is mostly people or local enterprises rather than large companies, and whose scale means they probably work out ok (most of the building societies, credit unions, arguably Metro Bank).
  • Religious banks (Al Rayan Bank, Reliance Bank).

What will I be doing?

For my current account, I really value convenience and customer service, so despite being far from the most ethical choice, I’ll be opening a current account with Metro Bank, with an aim to keep it pretty empty.

For instant access savings, I will be saving with Triodos and one of my local credit unions.

For term-notice savings, I will be saving with Ecology.

How did I get to that decision?

What follows is a brief narrative about each of the banks I investigated, starting with those who offer current accounts:

Reliance Bank

I did not investigate Reliance particularly heavily; they’re the bank of the Salvation Army, and I have problems with that particular organisation, so they were never really a contender for me. But some relevant information:
  • They offer current accounts (with everything you’d expect), and savings accounts which don’t pay any meaningful interest.
  • They blacklist certain trades (tobacco, alcohol, gambling, pornography, arms, the socially irresponsible, and those who don’t uphold the Universal Declaration of Human Rights).
  • They pay their employees the living wage.
  • They have only one branch, but have arrangements with other banks to allow you to use their branches for paying in.
  • Foreign transactions have a flat £1.25 fee.

Al Rayan Bank (formerly: Islamic Bank of Britain)

Loosely speaking, the Qur’an forbids charging interest on loans and generally making money from money (and accordingly, making interest on savings). Al Rayan, accordingly, don’t formally pay interest, but instead share the profits of the bank with their members. It’s certainly a subtle dance. One thing that this means is that they don’t quote interest rates, they quote “expected profit rates” which may be missed.
  • They offer current accounts and savings accounts. Their instant access savings don’t provide a meaningful expected profit, but if you’re willing to take a notice account or fixed-term account, they’re fairly competitive (ranging from 1% 60-day-notice to 2.88% 3-year-fixes).
  • Their investments are all in property or low-risk commodities; they blacklist the standard “evil” industries, and require actual assets underlying their investments.
  • They pay their employees the living wage.
  • They have five branches and three agencies spread across particularly Islamic cities of England.
  • There are limits on what countries accept their debit cards, what locations accept their debit cards (e.g. not petrol pumps), and they seem not to be part of the major ATM networks, so expect some fees. If you’re not near one of their branches, the accounts sound like hassle to operate.

Metro Bank

Metro Bank were founded in 2010 with an aim towards customer service. They do not brand themselves as particularly ethically focused (though they do talk about being community-focused, responsible, and charitable); their focus is definitely on profit via good customer service. In particular, they neither blacklist nor whitelist specific industries or groups. They don’t have an investment bank, they’re a small-ish straightforward deposit-taker-loan-lender retail group.
  • They offer current accounts (optimising for ease-of-use) and savings returning decent rates (0.75% instant access, 1% 90 day term).
  • European transactions charge no fee. Outside Europe, 1.9% is charged.
  • Their branches (“stores”) are spread mostly across London and the South East, and are open seven days a week.
  • They don’t have any particular ethical stance with their lending.

Building Societies

Building societies tend to offer decent rates of interest on savings, often times also offering current accounts. They tend to have a small number of branches in a local area, and to use their savings deposits exclusively to back mortgages (often only locally) though occasionally also for loans and/or insurance. If you’re looking for local community investment (where community here literally means “the people around you”), they’re not a bad choice. They’re formally owned and run by their members, and that gives some control over direction and aims. The largest few (Nationwide, Yorkshire, Coventry, and some others) have many branches across the nation (often times as the result of mergers of smaller societies), but quite quickly you get into the realms of them being very localised, and either only being accessible to those in the area, or possibly able to be operated by post or online.

Credit Unions

Credit unions operate fairly similarly to Building Societies; the notable differences are:
  • They require members to have a common bond (typically an area in which they live or work).
  • They are typically more strongly targeted to those of lesser means; they typically offer small loans rather than mortgages, and also many try to offer less obscene alternatives to increasingly prevalent payday loans.
  • Along those lines, they are typically less choosy with to whom they will lend. For instance, most credit union websites explicitly talk about the benefits their members are probably on. They try to provide banking to all.
  • They explicitly don’t seek to maximise profit, and they tend not to pay precise guaranteed interest; instead each year the members look at the profit made, and share it out as a dividend across the members.
  • They typically only have one or two branches, and if they offer current accounts, tend to charge a fee for operating them.
  • They frequently operate on much smaller scales than banks or building societies, and may not have full banking facilities. Some, for instance, manually process transactions (which may add a day or two to processing times), or require payments in to go to a shared account, with your account number as a reference, rather than actually allocating account numbers under a sort code.
They’re probably a more impactful place to put money than building societies, but they’re also likely to be a less convenient place to operate with; that said, they are frequently lauded for their customer service, and they definitely have very real impact in local communities.

Triodos Bank

Triodos Bank only lend money to people and organisations they view to be actively making a positive impact on society (whitelisting cultural, social, and environmental borrowers) rather than avoiding actively bad companies. Their definitions of positive are open to question (for instance, they happily fund homeopathy), but for the most part seems decent, and certainly better than most of the field.
  • They currently only operate savings accounts, though say current accounts should be coming in late 2016.
  • They pay their employees the living wage.
  • They offer 1% interest for online accounts, or more (but not much more) for term accounts of at least a year.
  • They are very transparent with their lending, actively listing all of their borrowers online.
  • They have only two branches in the UK, though as a savings-only provider this is probably less of an issue than for current account providers.
  • Their deposit protection is from the Netherlands, and so its limit is slightly subject to fluctuations on the GBP-EUR exchange rate.
One thing to note is that they also offer some ethical investment funds; note that they hold companies in these funds to a lower standard than those to whom they will lend, though still not a bad standard.

Ecology Building Society

The Ecology Building Society take deposits in savings accounts and lend only to support environmentally friendly, sustainable projects, particularly ecological new builds, energy-saving improvements, renovations, and preference to affordable housing. They also very consciously track and aim to improve their environmental footprint (e.g. publishing their “grams of CO2 per £ of new lending”).
  • They offer only savings accounts, but pay a good rate on them (1% instant access, up to 1.6% with 90 days notice).
  • Their banking facilities are somewhat limited; they operate by transferring money to their shared bank account with your account as a reference number; they have some online banking, but notice for notice accounts can only be given by post.

Charity Bank

Charity Bank only lend money to charities and social enterprises from savings deposits. They treat their employees and customers well, foregoing bonuses and hard sales targets in favour of a living wage. Their board are also unpaid volunteers. Their shareholders are all charities, trusts, or foundations, hopefully giving a good direction.
  • They operate only savings accounts, paying around 0.6% for 33 day notice accounts. This number is noticeably lower than others available, as they favour cheaper rates to borrowing charities over higher interest to their savers.
  • Their accounts are entirely operated by post.

Shared Interest

Shared Interest are a co-operative who provide unsecured loans to the fair trade industry; both to producers and buyers, in an attempt to cover the gaps that exist in the production/sales lifecycle. They are run very strongly as a co-operative, including a shadow-board of randomly selected members to oversee the board.
  • They operate share accounts, rather than deposit accounts, so there is no protection scheme for your money. This is a theoretically risky account.
  • Their interest rate is rather low, currently at 0.5%, and their roughly aim to target base rate minus 4%. They also offer an option to automatically donate this interest.
  • Their board is currently 37.5% female, which is almost unheard of in the industry.
  • They have a somewhat loose links to Christianity, which may be an issue for some.

So why my decisions?

For my current account choice (Metro Bank), I sided mostly with convenience. A bank which is open seven days a week, who charge no foreign transaction fees, and who seem to actually care about the experience of their customers is exciting. The alternatives here were: Reliance (except Salvation Army), Al Rayan (whose offering seems fraught with inconvenience, e.g. problems using cards in America or at fuel pumps), building societies (either not local to me, or not necessarily as convenient), or credit unions (for whom operating current accounts is actually quite expensive, and with whom a current account seems somewhat inconvenient). When Triodos offer a current account, this may change.

For savings, I found Shared Interest too risky for my profile. I found Charity Bank quite interesting, but a) I’d like to know more about their lending criteria, and b) I’m not entirely convinced that pushing loans on charities is the best way to support them. I find credit unions more compelling than building societies. And I find Triodos and Ecology both quite compelling, the former more so than the latter.

Please help me!

If there are any interesting offerings I’ve missed, please let me know! If you’d like to talk about these issues more, disagree with anything I’ve written, or generally have an interest, I’d love to hear from you too! Get in touch - dawagner AT gmail DOT com :)