Young Money is changing: we’re going to feature new young voices on the blog every month – original, engaging and fascinating posts from up and coming writers who have joined the Young Money mission. This week, we’re introducing David Graves, a rising young journalist who gives us his take on Good Money Week and how to manage your finances ethically…
By David Graves
‘Choosing which bank to open a current account with can be confusing at the best of times.’ OK, so it sounds like a cheesy line from a TV ad, but it’s true. There are countless current and student accounts available, all competing for young people’s money.
As though it weren’t bad enough trying to figure out which bank offers the best interest rate, the least terrifying overdraft charges and the most helpful customer service, increasingly we also want to know our money will be used ethically.
The Great British Money Survey recently found that 58 percent of 18 – 24 year-olds would be unhappy if they found out their money was being used to fund unethical activities. And many banks are now capitalising on this trend by bigging up their ethical credentials.
“As a financial services group our direct impact on the environment in terms of climate change… is limited,” claims one. Another sells itself as “managing the climate change risks of our operations and those of our clients”. One even switched off the lights for an hour in offices across 51 countries to support the WWF’s Earth Hour campaign.
That’s Royal Bank of Scotland, Barclays and HSBC respectively, all among the top 20 banks financing coal fired electricity and coal mining since 2005. With claims that sometimes don’t match up to reality, it can be really hard to figure out who is offering a truly ethical option.
Until recently the Co-operative Bank might have been the obvious choice. But following a calamitous year, the bank is now mainly owned by private investors, which include profit-hungry hedge funds – hardly renowned as stalwarts of ethical capitalism.
With Good Money Week in full swing this week, there’s never been a better time to investigate the ethical banking alternatives. Campaign group Move Your Money UK have made it easy to compare just how ethical different banks and building societies are, having devised a ratings system across a range of criteria.
So here’s the low-down on a few of the highest scoring current accounts and a look at some of the facilities young people use most often…
Reliance Bank, originally called The Salvation Army Bank, are committed to “stand out as a bank with a Christian and ethical conscience” and to generating income for the Salvation Army.
Reliance won’t deal with companies “involved in the manufacture of armaments, alcoholic drinks or tobacco products, repressive entities or those who do not respect human rights or do not operate in a socially responsible manner” according to their annual report, and Move Your Money awarded them 92/100 for their ethics. They also received full marks for customer service.
Their current account offers 0.05% interest on all balances – modest, but better than many major high street banks – and a debit card and online banking are available. They don’t provide any credit cards, but that may be a blessing in disguise! Planned overdrafts are charged at 5.5%, and unplanned at 12.5% (plus a £10 fee for going over the limit).
While some might not be comfortable banking with an overtly evangelical organisation, the combination of good service and a serious ethical commitment make for an appealing option.
Islamic Bank of Britain
In a similar vein, the Islamic Bank of Britain runs an ethical investment policy in line with Sharia Law and will not invest in many speculative financial instruments. However, this also means they don’t offer any interest and no overdraft facility is available.
Metro Bank, a relative newcomer to the market, has 26 branches in the Greater London and plans to have more than 200 across London by 2020. Accounts have to be opened in branch, but once it’s set up the bank offers a debit card, online banking and a mobile app – so if you really want an account and don’t live nearby, you could try and squeeze in some sightseeing and a West End show to make a holiday of it.
Although it’s free to open an account with Metro Bank, their current account doesn’t offer any interest on your deposit. Overdrafts, both planned and unplanned, are currently charged at an annual rate of 15% with a £10 charge for each transaction beyond your overdraft limit, up to a maximum of six transactions.
There’s little in the way of direct customer control that you might get with a mutual or building society, but they scored 92/100 for ethics were rated “highly for running an honest and tax-haven free operation that received few fines or complaints” according to Move Your Money. The Ethical Consumer group ranked their current account as the most ethical offered by a bank in the UK.
You might also consider a mutual, such as Nationwide – whose current account was ranked one place below Metro Bank by Ethical Consumer.
With the FlexDirect account guaranteeing 5% interest on deposits up to £2500 for the first year (dependent on depositing £1000 per month) they offer a considerably better deal than many others. The account also offers a 12 month interest free overdraft facility – but beware the 50p per day overdraft fees that follow after the first year. They also have branches across the country, making them more convenient than many other locally based building societies.
However Move Your Money deducts points from their score for fat-cat levels of executive pay and involvement in the PPI misselling scandal. That said, with the vast majority of their investment focused on loans to individuals and companies to buy property, they score a high 92/100 score for ethics.
And the rest…
There are many other smaller mutuals that are well worth looking into, such as the Cumberland Building Society and Coventry Building Society, but be aware that accounts with some are restricted to local residents and others don’t offer debit cards. It can also be difficult to deposit cash if you don’t live near a branch – if you’re paying cash in regularly, make sure to check where the nearest branch is.
It might also be worth bearing in mind that the much lauded Triodos Bank – which actively seeks out ethical investments, rather than just avoiding shady ones – plans to launch a current account in early 2016. If you want to your bank to be proactive in its approach to ethics, and are in no rush to switch account, then it may well be worth the wait.
In the meantime, why not kick off Good Money Week by exploring some more ethical banking options and finding the one that suits you.