Ethical savings accounts: green your cash flow
Ethical investing is becoming increasingly popular as savers want to know that their investments are not harming the planet. If this worries you, it’s also important to consider what funds your bank account funds.
When you deposit money in a bank, it doesn’t sit in a safe waiting for you to come back and withdraw it. Banks use their cash deposits to fund loans. These can be mortgages or car loans, but also larger business loans that could finance industries that harm the planet, such as airlines or oil companies.
You can avoid this by placing your money in an ethical bank account. These are banks, or in some cases just accounts, where your money is used to fund businesses and projects that aim to improve the planet and society.
The new kid on the block
One such example is the National Savings & Investments (NS&I) Green Savings Bond. NS&I is backed by the Treasury and this account was started to help the government fund its efforts to achieve net zero carbon emissions by 2050. The idea is that we all put our money into the Green Savings Bond and the government uses this money to finance projects such as offshore wind farms, carbon capture projects and to make old buildings more energy efficient.
Although the account had noble intentions, the initial launch was disappointing. In October, the three-year fixed rate account returned 0.65%. It was updated and the rate was doubled to 1.3%. NS&I said the rise simply reflected interest rate movements in the market, but experts are not convinced. “What’s more likely is that the original launch, which at the time offered the same interest rate as an easy-to-access checking account, collapsed like a lead balloon and NS&I didn’t had no choice but to raise the rate to attract more money and meet its funding goals,” Laura Suter, head of personal finance at AJ Bell, told the Financial Times.
Shop around for the best rates
That said, if you’re looking for an ethical savings account, you can always do better than the Green Savings Bond. NS&I pays 1.3% over three years, but Tandem Bank’s three-year fixed saver pays 1.9%. The challenger bank went eco-friendly last year and now uses deposits to fund green loans, although it’s still a bit vague on exactly how it uses your money to improve the planet.
You might get a better rate with Al Rayan Bank 36 Month Fixed Term Deposit with an expected rate of 2.01%. This is Sharia banking, which means your money cannot be used to fund businesses prohibited by Islamic law. This includes alcohol, tobacco and gambling, so it is an ethical option, but not specifically green (i.e. sharia loans are not necessarily used to better the planet – they could always finance oil and gas projects, for example).
Shorter term options
With all of these accounts, you lock in your money for three years, during which time interest rates could rise, leaving you behind. Just look at those who invested in the first NS&I green bond in October. A few months later, the interest rate doubled, but they’re stuck earning 0.65% for another two and a half years.
If you want a green savings account but don’t want to be locked into a long-term rate, another option is RCI Bank 14 Days Notice E-Volve Savings Account. This account pays 0.7% and your money is used to fund electric vehicles and charging facilities. You can beat that with non-green accounts with longer notice periods, but this is a competitive rate for such a short notice period. However, Tandem pays 0.77% on an instant access green savings account, which is near the top of the charts for any instant access account. He is beaten only by 0.84% of Cynergy Bank (which is only for one year, after which it reverts to 0.3%).
Ethical and green cash accounts tend to offer slightly less competitive rates than traditional accounts, but the gap is narrowing. If these accounts prove popular, this will hopefully encourage the wider banking industry to start offering similar products.