Can you still bank ethically on the high street?

ethical savings queue©iStock.com/urbancow

IT would be lovely if banking were simpler, if it was a case of nipping into town to deposit our money with a good company who invested it well and shared the returns with us fairly.

It still is possible to do that - it's just more difficult than it once was.

As the world has become smaller, investment opportunities have grown and priorities have changed - and with them the number of friendly institutions that will look after our money and the world we live in.

One benefit of the world getting smaller is that we're not limited to our own high streets any more - but the concept of an ethical bank on our doorstep is an attractive one.

So we'll start by looking at the two supposed champions, the Co-op and TSB. Anyone who wants to know about the alternatives is welcome to skip ahead.

The "high street champions"

The Co-operative Bank

The Co-op have benefited a lot over the years from being the only bank to have an explicit Ethical Policy that people can refer to.

But they've had a rough few years, losing thousands of customers as a result of jitters over bad business decisions, revelations about executives and their pay, and several high-profile resignations.

Even so, at the depth of the Co-op's problems, Ethical Consumer's Rob Harrison pointed out that, "...things didn't go wrong because of ethics, they went wrong because of the decision to buy the Britannia Building Society."

The Co-op were also the institution that wanted to buy what's now become TSB. That desire to grow by buying up the competition seems to have been quelled by their problems.

In the wake of that mess, Move Your Money Chief Executive Laura Willoughby MBE spoke of "the dangers of banks seeking to grow by acquisition instead of pursuing sustainable growth".

She added that banks should "take a 'back to basics' approach" and concentrate on "reliable and consistent service to individual savers and businesses."

So in June 2014, The Co-operative announced a review of their ethical policy, polling customers, stakeholders and staff to see what was most important to them.

More than 74,000 people responded, and no doubt as a result of the bank's issues, transparency and responsible banking were bigger worries for many than human rights and protecting the environment.

But the vast swathe of issues covered by "human rights" - which in the Co-op's ethical policy includes torture, arms trading, oppressive regimes and sexual discrimination among other things - was still the third most important factor.

The bank say that as a result of the poll, they've "strengthened and extended" their policy - but there's still some concern over their possible investments in hedge funds, which aren't seen as the most ethical way of raising money.

TSB

TSB - whose current accounts are reviewed here - don't use the E word. Instead they call themselves "different", emphasising their local ties.

They use the money their customers invest to fund loans and mortgages to local people and businesses - but just because a business is small and local, it's not automatically ethical.

As a company, they don't have an investment banking or corporate finance arm, so there shouldn't be any worries about them funding arms traders or drugs cartels.

Meanwhile any profits are either reinvested in the business, or paid as dividends to their shareholders, a decision taken by the board of directors.

There's nothing to stop anyone who wants to be a shareholder becoming one - and TSB shares proved incredibly popular when the bank was first floated in 2013.

And at the time of writing they're still part-owned by Lloyds, whose reputation isn't all that great, and who were one of the worst offenders when it came to the mis-selling scandals.

Because of that continued connection with Lloyds, Ethical Consumer rank TSB among the least ethical banks, just above Natwest, Barclays and HSBC.

They do, however, have a refreshingly open approach to explaining how they work, with the slightly alarmingly titled Truth and banking" page of their website setting out some of the basics.

Other options

In terms of customer satisfaction and ethical considerations, building societies tend to come top of most consumer research lists.

This harks back to Laura Willoughby's words about reliable and consistent service, as well as giving a clue as to what TSB hope to tap into by playing up their local focus.

But those not in the immediate areas served by the Coventry and Cumberland Building Societies - who came top of Ethical Consumer's ratings - don't have to give up on the "high street" part of their quest.

For those in bigger towns and cities Islamic Bank of Britain, Metro Bank and the Nationwide rank above the Co-op, while Handelsbanken and Santander get an equal ranking.

In December 2014, Nationwide also earned an "excellent" ranking for their customer service - and, in the survey by Market Force Information, they came second only to Barclays in terms of "location convenience".

They also offer one of the better current accounts, paying one of the highest rates of interest available.

But it's also worth looking at banks and building societies offering Sharia-compliant accounts. As we explain here , they're a good option for everyone because of their strong ethical code and good rates of return.

Finally, the poor cousin of the banking world, the credit union is also worth investigating. Many only offer savings and loans, but some of the larger unions also provide some form of banking.

As the whole point of credit unions is to promote responsible, inclusive, finance, the returns might not be that great, but the ethics should be fairly solid.

There's more on some of the options available here.

Savings

The seriously ethical institutions are only really accessible online - and they also tend to focus on savings and investments alone.

These are the banks like Triodos, the Charity Bank, and the Ecology Building Society.

Each offers something slightly different.

For example, Triodos offer a stocks and shares ISA, while the Ecology Building Society offer a range of pretty competitive mortgages, and the Charity Bank provide loans to charities and social organisations.

In conclusion

Whether or not it's possible to bank truly ethically on the high street depends in large part on where that high street is; people in bigger towns and cities will find it an easier task than those elsewhere.

But being able to bank online can at least remove the limitations imposed by geography - and allow those determined to combine ethics with a good return to find something that ticks both their sets of requirements.

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