There are many financial decisions to be made through our loves, but many of us look further than our own pockets when we are deciding which financial institution to use. There are some people that like the idea of an ethical bank. But what is an ethical bank and is it right for you?
What is an ethical bank?
An ethical bank will only invest money in ethical places. When banks lend or invest money they will choose where to do this. Some will just invest in anything that gives a good return and the same with lending. However, an ethical bank will avoid dealing with certain types of companies. They will try to avoid dealing with companies that have a negative influence on society. However, what they consider to fall into this bracket will vary between the banks. For example, they may not deal with companies that trade in fur or sell arms or that do anything against the ethical code of the bank.
It is worth noting that building societies could be more ethical than banks. This is because they have stricter regulations about their investments and profits go to borrowers and savers rather than shareholders. Credit unions are also another alternative. These are often run by churches or community groups and are set up to run as a financial co-operative to help those on low incomes to get affordable loans, even with no credit check. These are very local, so you will have to see if you have one you can use and they usually have limited opening hours and do not operate online normally either.
Advantages of an ethical bank
It can feel good to know that your money is not being used for unethical practices. This can give you a feel-good feeling. If you have particular things that you really are against money paying towards then this can be a really good thing for you. It might be that you are a vegetarian, for example and want to make sure your money will not be used to finance the fur trade or you might be against war and want to make sure that it is not used to finance weapon production. However, there might be lots of other things that you care about and want to try to protect against your money being used for.
You may also find that their products are comparable with other banks and so you may not lose out just because you use an ethical bank. This will depend though as obviously all banks do differ in what they offer to their customers. You may find that it is actually the building societies that are more competitive here as they do not have shareholders and therefore, they are not profit driven and may therefore give back more to their customers In the way of higher interest payments on savings or lower charges on loans. You will need to check carefully though as it is unwise to just assume that this will be the case as it may not be.
Disadvantages of an ethical bank
It is probable that you will find better deals with banks that are not ethical. This is simply because there are more of them. There are only a few ethical banks in the UK and so there is so much competition from other banks that it is likely they will not always be able to be the most competitive. You may not mind though as you may feel that your morals are more important than getting the best return on your savings or lowest mortgage rate.
You may also find that even though the bank is ethical, it may still have practices that you do not agree with. It could be worth taking a look in more detail before you switch banks. This will depend on whether you have very strong and specific morals or whether you are just interested in something that is better with no specific thoughts as to how.
So, knowing whether to switch can be a case of finding out more about which places you consider to be ethical and then deciding whether you are happy with what they are offering. They may be very competitive so you will be happy to switch but if they are not quite so good, then you may have to think about whether you are prepared to go without a bit of interest on your savings or pay more money for your loan so that you can feel good knowing that money is being used ethically. It is worth finding out who the more ethical banks and building societies are and then you will be able to look at what products they have. This will allow you to start to decide whether they have something that might appeal to you. If they do then you will be able to compare the rates and think about whether you want to go with them or not.