Ethical savings

The way that big banks, investment companies and other financial institutions manage money is causing major harm throughout the world. From funding fossil fuels to financing nuclear weapons, they fuel some of the dirtiest industries in the world.

Ethical savings provide a chance to redirect your money into more positive impacts. This article will talk about what that could look like and how to achieve it.

What are ethical savings?

Simply put, financial institutions decide what to provide money to. They use our savings to back investments in, and loans to, many different industries and projects.

Some companies will avoid funding toxic industries like coal and oil – a first step towards being an ethical finance option.

But the truly ethical options will also actively support companies and organisations doing something different. They will provide much needed backing for everything from community social housing and retrofits to solar panels and organic farming.

Ethical savings include money in your bank account, as well as any pension or an ethical investment. It might be money saved or invested with an ethical provider, or money that is directly funding a project you consider to be doing good in the world. Our guide to ethical investing has more information on this.

You may also want to consider the impact that a financial institution has in terms of their own direct practices. For example, do they avoid tax? Are they fuelling inequality through excessive directors’ pay? Many ethical options will have strong policies in these areas.

Are ethical savings important?

Ethical savings are one of the most impactful things you can do as an ethical consumer. When financial institutions decide what to invest in, they decide what our future will look like. An oil rig funded now will last twenty or thirty years into the future – as will a solar or wind farm.

For each pound that you have saved, a bank can loan out nine. So if you have £12,500 in savings (the median amount for a UK household), your financial provider can lend out £112,500 to either ethical or unethical industries.

By switching your savings to an ethical options (or deciding yourself what they should fund by investing directly), you can align your money with your values and make real-world impact.

Types of ethical savings

There are a few different ways to save ethically. Generally, you will choose to either put your money in a savings account or invest it. Investing always comes with some level of risk: if the value of your investment falls you may lose money. However, it usually offers better returns than the interest rates on bank accounts.

There are a few different types of savings accounts to choose from:

• Easy Access Accounts allow you to withdraw money easily, but probably have lower interest rates.
• Regular Savings Accounts are good if you can make a monthly deposit for a year, and should have higher interest.
• Notice Accounts mean you have to give notice and wait to withdraw money, but should have higher interest.
• Fixed Accounts are good if you want to avoid a falling interest rate, but it won’t rise either.
• Sharia (or Islamic) banking offers an ‘expected return’ rather than an interest rate, but financially it works out similarly for you.

Other kinds of ethical savings include:

• Pensions are often the largest investment we hold. You may have a personal pension and a workplace one.
• Individual Savings Accounts (ISAs) offer interest payments that are tax free up to £20,000 a year. Although, since the Personal Savings Allowance was launched in 2016 your interest payments will be tax free anyway, unless you are a higher rate taxpayer or have very large savings. You can get a Cash, Stocks and Shares or Innovative Financial ISA. We have guides to all three.
• If you’re between the ages of 18 and 40, you can also open a Lifetime ISA, which you can pay up to £4,000 into each year, and get a government bonus of 25% of the money you put in, up to a maximum of £1,000 a year. The ISA can be withdrawn to buy a first home or once you’re over the age of 60.
• Ethical Investment Funds can be a way to grow your savings, but also come with risks attached, so you should only invest money you can afford to lose.
• Providers may also offer savings accounts for children, businesses or other organisations.

You should always check the practical details, as different options will vary on how much you need to deposit in order to open an account, how easy it is to withdraw money, and what the expected interest rates or returns on investment are.

Most options now come with banking apps, but you may want to check this if it’s important to you. And other details like whether you can pay cheques in, if you need to be able to do that.

Which pensions are ethical?

Nest has strong carbon divestment policies and is not for profit. Our ethical pensions guide also rates 12 other brands, as well as looking at different types of pension, what makes a pension ethical, tax, transparency, investments and carbon reporting, sharia funds and ethical pension campaigns.

Your ethical pension options will depend on whether you have a workplace or a personal pension. Our guide to pensions explains the difference between the two and what this means in terms of ethics.

Which investments are ethical?

When it comes to ethical investment funds, WHEB and Triodos have some great options, included in our ethical investment funds guide.

With recent research by Ethical Consumer finding that 10% of ‘sustainable’ investment funds still finance fossil fuel companies, and a further 11% do not disclose enough information to know, avoiding greenwashing by companies can be a challenge in this market.

Ethical Consumer’s guide to ethical investment funds rates and ranks 20 options on their investments, transparency and approach to issues like carbon management tax avoidance.

We also have guides to cash ISAs, innovative finance ISAs, and stocks & shares ISAs, which give our best and recommended buys.

Ethical savings and climate change

Financial institutions are pumping money into fossil fuels, making them a key culprit of climate breakdown. Since the Paris Agreement, the world’s 60 largest banks have provided USD $4.6 trillion in financing to the fossil fuel industry.

Ethical savings options are reversing this trend – refusing to fund fossil fuels, and at their best funding our transition to clean energy through solar, electric vehicles and other greener alternatives.

We expect banks to have a policy against fossil fuels, be reporting their emissions including from their investments and to have a target and be taking real steps towards reducing emissions. Our guides to pensions, ISAs, investors and savings accounts all rate companies on their carbon management and reporting and whether they are likely to have investments in fossil fuels.