Bank on something better
In April 2012, the Ethical Consumer research team looks at the extensive range of options for ethical ISAs.
Good alternative options for savers include any of the mutual building societies listed here, or one of the smaller building societies or credit unions.
It’s always a good idea to have a small nest egg set aside, whether it be for a holiday, a deposit on a house or in case of emergencies. Cash ISAs are the most popular type of ISA (Individual Savings Account) because there’s no risk to your money.
Cash ISAs are the same as any normal savings account except they are tax free for a limited annual amount of saving. For the tax year 2011-12 you can save up to £5,340 in a cash ISA if you’re a UK resident aged 16 or over. Saving advice is generally that you should use all of this allowance before saving elsewhere.
Problems with banks
Mainstream banks may well take your ISA savings and lend them on to a range of controversial companies involved in activities of which you may disapprove. Of course, most banks now have Corporate Social Responsibility (CSR) policies which give the impression that they are as concerned about some of these activities as you are. However looking at their actual investments, as we have done for the ranking table (above), shows that in many cases these fine words are little more than hot air.
Industry initiatives such as the Equator Principles also allow banks to claim some ethical guidelines, but as the BankTrack article indicates, in practice the mechanisms are far too opaque to be truly meaningful. Ethical Consumer readers who backed our campaign to stop banks investing in the climate-catastrophic Canadian tar sands, and wrote to banks calling for divestment, will be familiar with the standard response: “We’re signatories to the Equator Principles”.
If they’re not using your money to invest in alarming activities on the other side of the world, they may well be using it to pay their Directors eye-watering bonuses – often millions of pounds a year. Recently the levels of bonuses – particularly those at government-rescued banks – have brought calls for regulation.
Attractions of alternative providers
Mutual deposit takers account for about 34% of cash ISA balances.(1) The specialist ethical providers Triodos, Charity Bank and Ecology Building Society – discussed in more detail in the Savings Accounts buyers' guide – all offer competitive ISA rates. For example, Charity Bank was offering an ethical ISA paying 2.5% annually at the time of writing. The highest paying ISA from an alternative provider was 2.8% from the Principality Building Society.
Ease of moving accounts
Government efforts to promote competition in the sector mean that it’s pretty easy to move your whole Cash ISA to a more ethical provider should you choose. In theory it should take no more than 15 days, but you should follow advice on how to do it without losing its tax free status. Contacting the new provider is usually the best place to start, but there’s also lots of online guides such as this one from the British Bankers’ Association.
Over the last couple of years there have been some changes in the providers of both ISAs and other banking services. The most prominent has been the somewhat controversial recent sale of Northern Rock to Virgin Money. Although an ethiscore of 8 is not that bad in the financial services sector, there are many better options around. And why an ethical consumer would want to do business with a company that has apparently named itself after a tax haven is hard to understand.
Better news was the sale of egg bank’s mortgage and savings business to Yorkshire Building Society which saw the brand’s ethiscore rise to 13.
Previously the egg brand scored only 2 out of 20 as a result of being owned by Citigroup, the giant US banking corporation widely criticised by campaigners for lending to controversial companies and projects including nuclear, coal mining, oil and armaments.
According to a poll commissioned by Triodos in the wake of the credit crunch:
- Two-thirds wanted to know more about where their money is invested
- 6 out of 10 said interest rates were no longer their main concern with savings
- 38% said they would consider a lower interest rate if they knew their money was being used in a more socially or environmentally responsible way.
It's time to bank on something better and move your money. This buyers' guide is part of a Special Report on Banking. See what's in the rest of the report.
1 www.bsa.org.uk visited 24/1/12