The banking sector has been the target of numerous campaigns over the years with tax avoidance, excessive directors' remuneration, investments in the fossil fuel industry and investments in nuclear weapons continuing to be key pressure points.
Despite the international 'Equator Principles' encouraging greater transparency around responsible decision-making in banks, they do not appear to have resulted in much movement within the practices of the mainstream banking sector.
Many of the banks featured in this guide also appear in our guide to current accounts. We cover many of these companies and the issues associated with them in that guide.
In addition to the banks, savings accounts are also offered by mutual organisations like building societies which have traditionally been a more ethical choice and score better on our score tables. See below for more details on building societies.
Indeed, there is a clear divide on the table between the building societies and those banks with ethical lending policies, which are scoring roughly twice as much as the banks below them.
Since we last looked at this sector, The Co-op Bank’s score has improved, largely because the Co-op Group, which includes the Co-op supermarkets, no longer has a 20% stake in the bank.
We have highlighted two anti-social finance issues – tax avoidance and directors’ pay – and the funding of both fossil fuels and nuclear weapons. Three names cropped up in all four of these areas – Santander, Citibank and HSBC.
Fair tax and unfair tax
In March 2016, Ecology Building Society became the first building society to receive the Fair Tax Mark, demonstrating the Building Society’s openness and transparency regarding its tax affairs.
Unfortunately, this positive news runs counter to the secrecy and aggressive tax avoidance that continues to pervade the rest of banking sector. We rank companies on their likely use of tax avoidance strategies, by looking at the type of subsidiary companies they have in tax havens. Companies that scored a worst or middle rating were marked down in the Anti-Social Finance column.
Worst rating: Virgin Money, Danske Bank, Bank of Ireland, Santander, Lloyds Banking Group, Citigroup, HSBC, Tesco Bank, and TSB.
Middle rating: Handelsbanken, RBS, Coutts, NatWest, Ulster Bank, and Barclays.
Best rating: Triodos, The Co-operative Bank, Charity Bank, Clydesdale Bank, Yorkshire Bank, ICICI Bank, Al Rayan Bank, Sainsbury’s Bank, and Metro Bank and the following building societies: Chelsea, Ecology, Norwich & Peterborough, Nationwide, Coventr, Cumberland, Kent Reliance, Leeds, Newcastle, Principality, West Bromwich, Skipton, Yorkshire.
Excessive Directors’ Remuneration
We mark companies down for paying their senior staff more than £1 million, as we believe more than this to be excessive in a world of huge inequalities. Companies were marked down in the Anti-Social Finance column.
The following companies in this savings guide paid more than £1 million in 2016:
Citibank, HSBC, Lloyds Banking Group, Santander, Co-op Bank, Barclays, Tesco Bank, TSB, RBS Group, Nationwide Building Society, J Sainsbury, CYBG (Clydesdale and Yorkshire Banks), Virgin Money, Handelsbanken, Danske Bank, Kent Reliance, and Metro Bank.
The Directors’ Pay report on page 15 lists the top salaries of all the companies in this guide, even if they are below £1 million.
Funding nuclear weapons producers
Eleven banks in this savings guide were directly involved in the financing of the nuclear weapons industry, according to the latest ‘Don’t Bank on the Bomb’ report:
Old Mutual (part owns Kent Reliance), ICICI Bank, Santander, Lloyds Banking Group (Bank of Scotland, Birmingham Midshires, Halifax, Lloyds, Scottish Widows), Danske Bank, TSB Bank, Citibank, HSBC (HSBC, First Direct, part owns M&S Money), Bank of Ireland (Post Office), and RBS Group (Coutts, Ulster Bank, RBS, NatWest).
They all received a full mark in the Arms & Military Supply column.
Funding climate change
Five companies in this guide are listed in the latest report looking at who funds extreme fossil fuels, like tar sands, Arctic oil and coal mining:
Citibank, Barclays, Santander, HSBC, and RBS Group (Coutts, Ulster Bank, RBS, NatWest).
They all received a mark in the Climate Change column.
Building societies: for people not shareholders
The Thatcherite reforms and deregulation of financial services, which took place in the 1980s, freed up international capital flows. Moves were made to ‘release’ the mutuals sector from the stultifying bonds of ‘unreasonable regulation’. Short-term self-interest – both among directors and ‘carpet baggers’ – nearly destroyed the building society sector in a rush to convert to banks. Now, with many of the converted banks either in foreign ownership or in ‘intensive care’ as a bailed-out bank, it is the societies that stayed behind and resisted these temptations that can feel a little smug.
There are now 44 remaining building societies, the number having been in steady decline since 1940 when there were 952. We have rated 12 of the larger ones. The other 32 were only excluded for reasons of space, but will also be a good ethical option for many people.
In our rankings, building societies all get a positive Company Ethos mark for being ‘mutuals’, i.e. owned by and run for their members. All customers are members and are able to vote at AGMs or stand for election to the Board. This is unlike banks, which are run to maximise profits for external shareholders. Mutuals have a fundamental difference at the heart of their organisation.
At Ethical Consumer, we have noticed that, not only have mutual financial organisations proven more stable because they generally hold lower risk investments, but mutuals generally tend to deliver more ethical business behaviour.
The banks’ drive for quarterly profits is almost always the same drive that is ignoring ethical issues whatever the long-term cost to the planet. Built on short-termism, shareholder-owned businesses and profit-seeking markets have not just proven unable to manage a stable financial system, but they have also failed to deliver on the even more vital tasks of protecting the biosphere and delivering sustainable energy solutions.
Building societies also perform better in our rankings than banks largely because regulations stipulate that at least 75% of a building society’s assets must be held in residential property mortgages, rather than invested in companies with dubious ethical records. This means that they can only be ‘mortgage’ or ‘building’ focused and, as such, financially quite conservative. So far as we can tell, most do a little lending to companies but almost always to small businesses to buy commercial buildings in their local areas.
In many cases, the best mortgage rates may be restricted to those within your geographical area. And it is this local element to the smaller societies, once looked down upon as parochial and staid, that has attracted attention from radical economists. If the money you save is being lent to people in your area to invest in property, then you are contributing to the economic success of that region, rather than permitting these savings to ‘leak out’ to more lucrative property bubbles elsewhere in the country. This aspect of building societies is very similar to credit unions’ ethos. See our feature on credit unions.
All building societies do mortgage lending and offer savings accounts and most offer ISAs. Two of them – Cumberland and Nationwide – also do current accounts. Postal and internet banking means that most offer at least some of these services nationwide.
To find your local building society search the members list on the Building Societies Association website.