Fed up with the Co-op Bank debacle? Where should savers look for ethical banking now?

21st May 2014


One in five Co-operative Bank customers are considering taking their business elsewhere after a scandal-hit year, according to new research writes Kara Gammell.

Figures from Moneywise Magazine show that 18% of Co-op Bank customers said they are currently considering switching to another bank – up from just 4% who said they would leave the financial institution this time last year.

In June 2013, the bank’s chairman, Paul Flowers resigned after the bank got into financial difficulties – it was later revealed that he had a drug problem. Then the Co-operative Group reported the worst set of financial results in its 150-year history, recording a £2.5 billion loss in the year to December 2013, with the banking arm accounting for £2.1 billion of the total.

“While the Co-operative Bank’s core principals haven’t changed – it still has a 15 page ethical plan – some people question whether it can really continue to operate in such an ethical manner now that it is partly controlled by American Hedge Funds,” said Andrew Hagger, independent personal finance expert at Moneycomms.co.uk.

But has the demise of the Co-op’s reputation dealt a significant blow for ethical banking as a whole?

“Not from what we can see,” says Rob Harrison, editor at Ethical Consumer magazine.

“The ethical banking movement is international and doing well elsewhere. Indeed there is no evidence so far that the ethical management of the bank was a problem – it was the commercial managers who made poor decisions.”

Those who are unimpressed with the Co-op’s behaviour and want to switch their savings, may be surprised to discover that they have plenty of choice when it comes to institutions that offer savings accounts and have a mixture of good ethical values and quality customer service – often seen as the Co-op’s two biggest selling points.

Charity Bank, for instance, is the UK’s only bank that is also a registered charity. It only lends to charities, voluntary groups and social enterprises with a positive social purpose and offers ethical Isas and savings accounts.

While, Triodos Bank only lends to businesses that promote or provide lasting positive change, their saver account links your savings with organisations that benefit people and the environment like organic farms, fair trade companies and charities. This bank is the only financial institution that is totally transparent about who it lends to, with a full list of loans now available on its website.

Then there is Ecology Building Society. This mutual provides a range of savings accounts administered by post. Deposits are used to fund mortgages that promote sustainable housing and communities. However, due to high demand and with the mortgage book fully funded, all but one of the savings accounts on offer here are only available to those people who were members before 7 June 2013 – although savers who are interested can go on a waiting list by contacting marketing@ecology.co.uk.

So how do these savings accounts stack up to the competition?

When it comes to an ethical savings account, you invariably pay for your principles. But while the majority of the ethical accounts on offer pay lower rates than those offered by high street banks, they are not far out of line, says Mr Hagger.

“While you may not earn as much interest in an ethical savings account, you will get peace of mind that every penny of interest you receive has been earned ethically. If you genuinely care about certain issues you can still achieve a reasonable return without compromising your principles,” he says.

If you are looking for an easy access savings account, Triodos’s Online Saver Plus and Ecology Building Society’s Foundation Share savings account both pay 1%. However, this falls short of the current best buy on offer, which comes form Tesco Bank at 1.35%.

Charity Bank Savings Account pays a variable rate, so the longer the notice period you choose, from 33 days to 12 months, the more interest you earn. Rates start at 0.5% for a one-month notice period, 0.6% for three months and 0.7% for 12 months. Higher rates are paid on balances over £25,000.

If it is tax-free savings you are after, Triodos has two-year and three-year fixed-rate Isas available, which pay 1.8% and 2% respectively. Both accounts allow deposits for a period of 60 days from the date the account was open. The current best buy two-year fixed-rate Isa comes from Cheshire Building Society and pays 2.05% while Nationwide Building Society has the top-paying three-year deal, with an interest rate of 2.25%.

Triodos’ Online Cash Isa pays 1.4%, although customers have to tie up their money for 33 days. This account sits just behind NS&I’s equivalent account which offers an interest rate of 1.5%.

When it comes to saving for children, its Ethical Junior Cash Isa pays 2% and can operated by post or online. This account doesn’t fare as well in comparison to the current best buy account that comes from Nationwide Building Society, paying 3.25%.

As with all the tax-free savings accounts at Triodos, savers are able to add additional deposits up to the new £15,000 Isa allowance (or £4,000 for a Junior Isa) from 1 to 31 July 2014 after which time normal restrictions to the account regarding deposits will apply.

Any deposits placed with Ecology Building Society or Charity Bank are safeguarded by the Financial Services Compensation Scheme (FSCS).

Under this scheme, the government guarantees £85,000 per person per financial institution. Those with joint accounts are covered for £170,000 in total. However, bear in mind that the FSCS protection is per institution rather than per account, so multiple accounts at one bank will still be guaranteed only for a combined total of £85,000.

Bear in mind that in the unlikely event that the bank goes bust, the UK’s Financial Services Compensation Scheme does not cover Triodos. As the bank is based in the Netherlands, the Dutch Deposit Guarantee Scheme would protect balances up to 100,000 euros.

So how do you choose the right account for you? How can you find a savings account that meets you morals?

Everyone has different priorities – and this is no different when it comes to ethics. Whether your main concerns are environmental, related to human rights or you are strongly opposed to financing pornography and firearms manufacturers, these will determine which savings institution is best for you.

To get an idea of whether a provider’s ethics match your own, look for information on company annual reports. Alternatively, check out moveyourmoney.org.uk. Here, the banking campaign group has given all the main banks and building societies a “switch score” out of 100 based on how they fared when it came to honesty, customer service, culture, supporting the economy and ethics.

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