/ Money

Do you prefer to invest your money ethically?

Man reflects on his conscience

This week is National Ethical Investment Week (NEIW). But how do you choose an ethical financial product, and can they offer good value for money in addition to the feel good factor?

It’s around a year since I switched my bank account to Co-operative Bank. Attracted by the Co-op’s clear ethical policy, I’ve been broadly happy with the switch, but am aware it’s cost me money.

The Co-op’s current account doesn’t pay credit interest, doesn’t come with an interest-free overdraft and doesn’t pay cashback or rewards. Other banks do. However, it does leave me with a clear conscience, knowing that my money isn’t being invested in markets of which I disapprove. And it always does well for customer service in Which? surveys.

A good investment egg

As well as a current account, I also looked for an ethical home for my savings. I know I’m going to use my savings in the next couple of years, so I’m keeping them cash-based, rather than taking a risk on the stock market.

First of all, I put some money into my local credit union. However, I wanted some certainty on the returns I would earn – most credit unions pay retrospective dividends, so you don’t know in advance how much you’ll earn.

Next I considered ethical provider Triodos as I like its environmental focus. However, Triodos is based in Holland so savings are covered under the Dutch compensation scheme, rather than the UK’s Financial Services Compensation Scheme (FSCS). While it’s unlikely that Triodos will go bust, I prefer the simplicity of dealing with the UK compensation scheme if the worst happened.

Ethical banking products

Charity Bank, which lends money to charities and community organisations, has proved to be a good solution. It pays 2.05% AER on its cash Isa (not currently open to new customers) and the rate doesn’t include a short-term bonus, so I don’t need to keep switching to chase the best rates.

Overall, I’m glad I made the switch to ethical banking products. However, I look forward to a time when consumers don’t have to choose between the best-value option and the most ethical one.

How do you balance returns with ethics? Have you found an ethical provider that also offers great service and competitive rates?

Alice Martin says:
15 October 2013

Hi Martyn, glad you’re writing about this as I’ve had a few related conversations with friends recently. What do you think about investing in bonds for non-profit organisations whose values or business models you agree with? For example there are public service mutuals currently offering bonds, that say tie you in for 5 years with a fixed interest rate. I’ve been considering this as an option for my (quite modest!) savings as the returns seem very good and it would allow me to support a worthy cause. But is it too risky?

I can’t afford to be ethical. When interest rates range from abysmal to insulting I cannot afford to add ‘ethical’ to the mix. I invest where I can get a return that I can live on.

James says:
16 October 2013

@banjo Maybe that’s part of the problem- too many rich people ‘living off returns’. Maybe more people should live off wages and work for their income and keep saving for rainy days and retirement.

@James “@banjo Maybe that’s part of the problem- too many rich people ‘living off returns’. Maybe more people should live off wages and work for their income and keep saving for rainy days and retirement.”

I am retired & living off savings. Thank you.

I too can’t afford to be ethical. My income is reducing year on year due in part to the p*** poor interest rates and the fact that my private pension is not keeping pace with the cost of living. I still have almost six years until I receive my state pension and need my savings to top up my current income.

I have my main current account with First Direct plus a regular saver, and a second current account with Barclays. Two savings accounts with Skipton, one an ISA and the other a savings account and another ISA with Halifax. All accounts selected for the best service and or the best interest rates at the time they were set up. How am I doing on the ethical scale, Martyn?

Moderator, you only removed one ‘s’. I am now a true member as I have been moderated.

Tabitha says:
18 October 2013

I am amazed how few people use ethical phone or broadband companies where you can become a member and share in their profits. Yes, sometimes it is a little more expensive but I have found them helpful and one talks to a real person that is always reassuring.

Isabel says:
21 October 2013

I completely agree. It’s just a case of looking a bit better… There are always ethical options (social enterprises, co-operatives…) and they are not necessarily more expensive – e.g. the co-operative phone and broadband provider you mentioned. Ethical enterprises cover all the sectors and all the services you may need as a customer, and, at least, you know your money will go to a good cause in the end. And if you get some proper money (a co-operative dividend or interest) in return, even better!
Maybe the problem is that these ethical businesses don’t advertise themselves enough or using the right channels?

For some, the only way is ethics. Not for me, unfortunately. While I have always steered clear of unethical investments, I cannot claim to have always looked for expressly ethical ones. I have always made any equity investments directly in companies I have personally selected after a certain amount of enquiry but I reckopn some of these would not pass a stringent ethical test. Indirect investment, through a pension fund or unit trust for example, will – unless there is a declared policy of making ethical investments only – almost certainly involve holdings that might be considered unethical to some extent.

I can see two points of view on the ethics versus returns question: on the one hand, yields are generally so dire now that a fraction off the best rate is nothing to get upset about; on the other hand, so many people’s nest-eggs and rainy-day funds are actually decreasing in real-terms value that they have no choice but to extract every drop of juice out of them and go for the best return regardless. As Martin says at the top : it will be good when “consumers don’t have to choose between the best-value option and the most ethical one”.

I have three account with co-operative bank including a business account. I switched because their record promoted peace and prosperity. I have recently heard that they have arbitrarily closed accounts of at least two human rights organisations. My heart sinks is there no ethical banking for the average person who needs a current account. I believe this is due to the new management structure.
Has Which ever done an ethical comparison of banks, building societies and credit unions?