We look at banking institutions that claim to put principles before profits.
The fallout from the Barclays scandal has left many pondering the allure of so-called "ethical" alternatives to the big high-street brands.
Navigating the various ethical banking options can be arduous, while different organisations may have different ideas of what constitutes an "ethical" option. The following explanations may help you to understand what is available.
The Co-operative Bank
This Manchester-based organisation is one of only two "ethical" banks that offer a personal current account – and it is expanding fast. It has been operating since 1872. Despite its name, it is not a technical co-operative as it is not owned directly by its members. Instead, it is wholly owned by the Co-operative Banking Group, which is in turn owned by the member-owned Co-operative Group.
If you bank with the Co-op you have the option to become a member of the Co-operative Group. It also owns Smile, the internet bank. It is merged with Britannia Building Society.The Co-operative has the benefit of very high customer satisfaction ratings, although the interest rates it offers to its customers are seldom market leading.
Its standard current account does not pay interest on credit balances. Although the Co-op currently has few branches it does allow you to do most of your banking via a local post office and you can also bank over the internet with both the Co-op and Smile, its internet brand.
The Lloyds deal announced this week will give it a far wider branch network, with an extra 632 branches when the changeover is complete.
As well as its current account the Co-op offers mortgages, loans and credit cards as well as having an insurance arm. Again, the rates are not always competitive – its current cash Isa rate is 0.5pc. Fixed-term bonds offer a better value solution, including a three-year bond paying 3.93pc interest on a monthly basis.
On the ethical side of things, the Co-op's members decide its investment policy. The Co-operative says it has withheld over £1bn of funding from business activities that its customers say are unethical. These include extremist organisations, arms manufacture, organisations that use child labour or businesses that restrict access to vital medicines in the developing world.
Islamic Bank of Britain
This is the only other ethical bank to offer a current account. Islamic Bank of Britain refuses to invest money to finance armaments, alcohol, tobacco or drugs companies. The products it offers, should, it says, appeal to any Muslim or non-Muslim who is interested in holding an account with a bank with exacting ethical standards.
Its current account is interest free in accordance with the Islamic principle of Qard (a loan free of any benefit). You can have a debit card and chequebook, and use ATMs. The bank's savings accounts pay profit instead of interest and aim to pay a target profit rate of 2pc on its 120-day notice account and 3pc on its two year deposit account.
The group also has a home purchase plan which allows you to finance your home in a Sharia-compliant manner.
Triodos
Triodos, another ethical bank, offers cash Isas, investments and savings, but no current account. The bank's definition of ethical means it focuses on active positive funding rather than simply avoiding those products that are unethical. The bank says it only lends its savers' money to people and organisations who are working to make a positive impact – culturally, socially and environmentally.
In response to the "casino banking" culture, Triodos says : "We only lend money entrusted to us by our savers, and not a penny more. In a climate that's seen so many banks around us thrown into turmoil, our approach has enabled us to remain solid and stable."
Triodos lends to Neal's Yard Remedies, The Youth Hostel Association and Ecotricity, among others.
For personal customers, some rates can be attractive. The bank offers ethical cash Isas at rates of up to 2.5pc, and an easy-access online saver at 2.5pc. However, this contains a 12-month bonus and will fall to 1pc after a year.
The bank also offers investment opportunities including a renewables fund and a microfinance fund. However, the minimum investment can be high – £50,000 for the microfinance fund.
Ecology Building Society
Many mutuals would claim to be an ethical alternative to banks, but Ecology takes this several steps further. It offers savings and mortgages with a firm focus on saving the planet.
However, as you may expect, its interest rates are not high. The cash Isa pays 2pc, and the savings bond pays 2.25pc if you put over £10,000 in for a year.
But if you want to borrow money to fund an energy saving project such as renewable technology, Ecology could be just the lender you are looking for.
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