Like all businesses, banks profit by earning more money than what they pay in expenses. The major portion of a bank’s profit comes from the fees that it charges for its services and the interest that it earns on its assets. Its major expense is the interest paid on its liabilities.
The major assets of a bank are its loans to individuals, businesses, and other organizations and the securities that it holds, while its major liabilities are its deposits and the money that it borrows, either from other banks or by selling commercial paper in the money market.
Banks increase profits by using leverage — sometimes too much leverage, which helped precipitate the Great Recession of 2007 to 2009. Profits can be measured as a return on assets and as a return on equity.
Because of leverage, banks earn a much larger return on equity than they do on assets. For instance, in the 1st quarter of 2016, all financial institutions insured by the FDIC, which includes most banks, earned an average return on assets equal to 0.97%, whereas the return on equity was 8.62%.
- What is Ethical Banking?
- Which Banks are Most Ethical?
- Why is Ethical Banking Important?
- What is the Most Ethical Credit Card?
- Is the Cooperative Bank Still Ethical?
- The Alternatives if you want to Move From Co-op Bank
- Which is the Best Bank to Bank With?
What is Ethical Banking?
An ethical bank, also known as a social, alternative, civic, or sustainable bank, is a bank concerned with the social and environmental impacts of its investments and loans. The ethical banking movement includes: ethical investment, impact investment, socially responsible investment, corporate social responsibility, and is also related to such movements as the fair trade movement, ethical consumerism, and social enterprise.
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Other areas of ethical consumerism, such as fair trade labeling, have comprehensive codes and regulations which must be adhered to in order to be certified. Ethical banking has not developed to this point; because of this, it is difficult to create a concrete definition that distinguishes ethical banks from conventional banks.
Ethical banks are regulated by the same authorities as traditional banks and have to abide by the same rules. While there are differences between ethical banks, they do share a desire to uphold principles in the projects they finance, the most frequent including: transparency and social and/or environmental values.
Ethical banks sometimes work with narrower profit margins than traditional ones, and therefore they may have few offices and operate mostly by phone, Internet, or mail. Ethical banking is considered one of several forms of alternative banking.
Which Banks are Most Ethical?
Ethical bank accounts are some of the most powerful tools any of us can use to to change the world for the better. Besides being the repeat architects of global financial crises, big banks are also the chief funders of fossil fuel – as is increasingly being shown by organisations including Banktrack and Greenpeace.
UK bank Barclays ranks right up there as the world’s fifth biggest investor in dirty energy. Since the Paris Climate Accord was signed in 2015, Greenpeace says Barclays has poured $85.2 billion into the fossil fuel sector. This contributes to a $1.9 trillion haul injected into fossil fuel by 33 of the world’s largest banks.
Such big numbers can often feel very far away from our more modest monthly salaries. However, banks run on our money and so even those few pounds running through our accounts contribute to their firepower. It doesn’t have to be that way, though.
To help you make sure your money matches your values, we’ve compiled a list of the UK’s top 5 ethical bank accounts.
1. Triodos
Leading the ethical bank pack by a country mile is Triodos. Established in 1980 in the Netherlands, Triodos ploughs its profits back into local communities and has invested more than £6 billion in projects that benefit people and planet across Europe.
It became the fully-fledged UK registered bank last year, which means your savings are covered by the Financial Services Compensation Scheme. It offers a personal, business and charity current account, as well as a range of savings and investment accounts.
The personal current account has a monthly fee of £3, which means Triodos doesn’t have to charge extortionate overdraft fees to keep accounts ‘free’, like the big banks do.
2. Ecology Building Society
Ecology is another truly green financier. It does not offer a current account, but it is the UK’s only dedicated green mortgage provider. This means it loans money to those looking to make green improvements on their home or to build an environmentally friendly house from scratch.
It also has a range of savings accounts: an easy access paying 0.85% gross interest per year; an ISA paying 1.1%; a 90 day notice account paying a variable interest rate of 1.00% to 1.45% and a regular savings account paying 1.75% a year. All have a minimum investment of £25 while withdrawal terms vary.
3. Nationwide
It’s very important not to make the perfect the enemy of the good when it comes to looking for ethical bank accounts. Nationwide is one such example. Whole not boasting the ethical or green credentials of Triodos or Ecology, Nationwide is one of the UK’s most established building societies.
This means that, unlike a bank, it is not listed on the stock market and accountable to shareholders. Instead, it is accountable to its members – i.e. you and me. It has a fairly clean record in terms of corruption and doesn’t even register on the fossil fuel investment mega-scale. It also has a wide range of current and savings accounts. In other words, you could do a whole bunch worse.
4. The Co-Op Bank
The ethical banking sector took a huge hit when the Co-Op Bank suffered it’s ‘crystal methodist’ scandal back in 2013, followed by its sale to US hedge funds. Despite this, though, the Co-Op remains a good choice among the more mainstream highstreet providers.
It has a solid ethical policy that it proves adherence to in a thorough annual report, while it remains one of Ethical Consumer’s top choices for better bank accounts. Like Nationwide, it also doesn’t even tip the needle on fossil fuel investment.
It’s hedge fund owners muddy the waters a little, with holdings in areas including airlines and crude oil transportation. Compared to Barclays, though….
5. Monzo and Starling
App-based banks are the fastest growing area of finance today, with a 2018 report showing that that online banking has now overtaken visiting bank branches – where only a third of transactions happen. Two top challengers in this area are Monzo and Starling.
Monzo offers personal accounts while Starling offers both a personal and business account. Neither of these banks is particularly ‘ethical’ (certainly not in the Triodos sense).
However, both do pride themselves on transparency and strong customer service, while neither is beset by the legacy issues of the banking behemoths. They are also both very user friendly and hugely popular with the younger crowd.
Why is Ethical Banking Important?
The stock market scam of 1992 is considered one of the worst violations of ethics in the Indian financial industry. Retail investors lost money after the market was manipulated, and it subsequently lost 72 percent of its value.
Despite serious consequences and convictions, a similar fraud in which bank and promoter funds were used to manipulate stock prices took place within a decade. At a global level, the financial crisis of 2008 pushed the boundaries of unethical practices with housing loans given to subprime investors.
Its effects continue to be felt across the world even after a decade. Economic activity has not yet returned to trend in most countries and public debt in advanced economies has risen by more than 30 percentage points of GDP.
Still, accounting frauds and market manipulations, Ponzi schemes, insider trading, and other misdeeds continue to shatter investor confidence.
There are many reasons why ethical violations occur. Sometimes they become the norm because “everyone is doing it.” Others happen when individuals take advantage of loopholes in the system. Ultimately violations are driven by the potential personal gain of the investment professional.
Investors intrinsically trust financial institutions with their money and expect them to invest it with integrity. All market risks considered, investors expect the highest return and put their faith in the hands of professionals.
Upholding investor confidence is vital to the success of the investment industry. High ethical standards are critical to maintaining the public’s trust in financial markets and in the investment profession.
CFA Institute Code of Ethics and Standards of Professional Conduct outline best practices around professionalism and integrity of capital markets, duties to clients and employers, investment analysis and recommendations, and conflicts of interest and responsibilities.
The Code of Ethics maintains that investment professionals must place the integrity of the profession and the interests of clients above their own, and act with competence and respect.
Since their creation in the 1960s, the Code and Standards have signposted the integrity of CFA Institute members and served as a model for measuring the ethics of investment professionals globally, regardless of job function, or cultural context.
Protecting investor interests and strengthening their trust is paramount. Ethical conduct is vital to the ongoing viability of capital markets. Regulatory reform may go some way to combatting the misconduct in the industry but that alone is insufficient.
Individuals and firms must develop a ‘culture of integrity’ that permeates all levels of their operations. This will promote the principles of stewardship of investor assets, and work in the best interests of clients, above and beyond strict compliance with the law.
A strong ethics-based culture that helps people engage in and promote ethical behaviour will foster trust lead to robust global capital markets, and ultimately benefit society.
Professions can only exist within an industry when those acting with transparency, integrity, candour, and trust reach a critical mass. CFA Institute has long championed these values.
The organisation believes that the investment industry should work for the ultimate benefit of society, and that cannot be achieved without the highest possible standards and ethics.
What is the Most Ethical Credit Card?
Credit cards are rarely out of the news, whether it be providers hiking limits without asking to the UK’s growing consumer debt pile to scammers hacking credit files. Added to all this are the ethical concerns many have when choosing a provider, particularly with cards from the big banks where lending may be questionable.
Meanwhile charity cards, which were once a popular option for ‘ethical’ spenders who wanted to donate a proportion of spending to their chosen cause, are largely a thing of the past after repeated attacks on their poor donation rates.
In this difficult market, here are some of the more ethical cards to consider.
Nationwide Credit Card
Nationwide changed its terms and conditions in 2016 to rule out automatic increases in credit limits, and doesn’t remove promotional deals if a user misses a payment. The mutual also ranks within the top three of ethical credit providers with the Good Shopping Guide.
Its card offers a 0 per cent fee for twelve months on balance transfers, no balance transfer fee in the first three months and 0 per cent on purchases for the first year. It also has some cashback offers and a commission- free allowance to use abroad on any purchases in pounds sterling.
Co-operative Members Credit Card
With 1p back for every £2 you spend in the Co-op food stores and 1p for every £3.33 spent everywhere else, this fee-free card offers rewards and incentivises you to shop with the mutual, which has ethical sourcing policies. However, the Co-operative Bank is now owned by hedge funds and some believe that the future of its ethical policy may be in doubt.
Smile Classic Credit Card
Available to Smile customers only, this fee-free card comes with 0.25 per cent cashback on all spending. Smile is owned by the Co-operative Bank, and shares its Ethical Policy.
Metro Bank Credit Card
A challenger bank without the legacy issues of some of the larger players, Metro is (so far) unencumbered by some of the scandals that have plagued the likes of the Co-Op. It also promises to print your credit card while you wait. There’s no cashback and it offers one single, low rate of 13 per cent. However, the card is free to use in Europe, which may sweeten the deal, particularly if you are a regular traveller.
Aqua Credit Card
Designed to help people with bad credit rebuild their credit scores, the Aqua credit card scores highly with the Good Shopping Guide on a number of fronts, including responsible lending and environmental policies. It charges a single rate of 35.9 percent with credit limits ranging from £250 to £1,200.
Is the Cooperative Bank Still Ethical?
You opened an account with The Co-operative Bank because of its ethical values. You shuddered when the first news of its £1.5bn financial black hole emerged. You cringed over lurid stories of its “crystal Methodist” chairman.
You came close to leaving when the hedge funds took control. Now, as the bank puts itself up for sale, should you finally abandon your account – or hold on, hoping that its values survive?
Even its natural friends are losing faith. The Move Your Money group, which campaigns for “equitable and sustainable banking”, says: “The truth is that this is the last spin of the dice for a desperate and downtrodden institution.”
Move Your Money launched an ethical bank scorecard in 2013, but found The Cooperative Bank “was not quite as ethical as it liked to portray, lagging way behind all other ethical providers, and even most challenger banks.
Since then, it has come under fire for drug-addled executives, culling branches, vulture fund owners, and ongoing IT failures – hardly a differentiator from the major banks in those regards.
“More damaging are the ongoing capital inadequacies, and, even worse, for its ethical image, the poorly handled and frankly egregious attempt to dump social justice campaign groups from its customer base”.
In late 2015, it shut the account of the Wales Nicaragua Solidarity Campaign, although it insisted it was not a political or discriminatory move.
But Shaun Fensom, a customer of The Co-operative Bank and enthusiastic supporter of its values, sees things differenly. He acknowledges there have been management failures, and that it was “badly run and overstretched”.
But he believes existing customers should stay and fight to maintain its principles. He helped set up the Customer Union for Ethical Banking, which has 1,500 members from The Co-operative Bank, and says record numbers have signed up since the sale was announced.
“We are saying that now, above all, is the time to join the customs union. We want to see the ethical policy stay in place because without it the bank will be doomed. It would be a commercial disaster to drop it. I certainly don’t want to move my account. I want it to be a successful, customer-led ethical bank.”
Fensom points out how, in the wake of its disastrous merger with Britannia building society and near financial collapse, the bank asked members about revising its ethical policy – and the response was that customers wanted a strengthening, not weakening, of its ethical stance.
The Co-operative Bank has been at pains to say that it is not abandoning its principles. A spokesperson told Guardian Money: “Cooperative ethics and values are embedded in the constitution. It is business as usual for day-to-day banking.
The sale is about building the capital position for the future, not about us meeting our minimum capital requirements today. This announcement has no impact on the products and services customers have with the bank.”
It says it remains consistently in the top five for customer service in the UK, and even its critics accept there is no risk of a run on the bank. Customers are protected by the £85,000 cover under the Financial Services Compensation Scheme, and the “core” bank (if one ignores some of its legacy issues) is making a profit.
Independent expert James Daley of Fairer Finance says: “It has performed surprisingly well for its existing customers since its troubles a few years ago. Its customer satisfaction ratings have been improving, as has its complaints performance – so the latest news about its future is disappointing.
It’s true that it was not offering any particularly radical products for new customers – but it felt very much like it’s been in a time of recuperation and rebuilding.
“In the immediate future, I’d suggest that customers sit tight. As long as they’ve got no more than £85,000 with the bank, there’s no material risk to their money – and even then, the chances of the bank going bust is relatively slim.”
Judged purely by its products and services, though, it only receives average ratings. Antony Elliott of the Fairbanking Foundation, a charity which encourages banks to improve the well-being of customers, says: “Its retail products were not top in our most recent report.
While it has long been regarded as the bastion of ethical banking, we are now seeing both challenger and traditional banks genuinely focus on products which have their customers’ financial well-being at their heart. The future of fair banking in the UK does not depend on whether a single bank survives.”
Will the new owner, whoever it turns out to be, respect its ethical heritage?
“One popular theory is that the TSB is likely to take over, because of its ‘ethical and local’ approach to banking,” says Move Your Money. “This is a complete misnomer – the TSB is no more ethical or local than any other big high street bank. It is structure rather than policies that make a bank truly ethical – and the TSB doesn’t have either.” (TSB was bought by Sabadell of Spain soon after it was spun out of Lloyds).
How much of a blow will a sale of The Co-operative Bank be to the very concept of co-operatives? Stuart Coe, chief operating officer of umbrella group Co-operatives UK, and a Co-operative Bank customer, believes any buyer will have to maintain the values the bank has championed.
He argues that the co-operative model is thriving in the UK, not least the Co-op supermarkets, which will relinquish their 20% holding after its sale.
“Co-ops contribute £34bn to the UK economy, with 17.5 million people who are members of a co-operative, a 15% rise on the year before.”
The Alternatives if you want to Move From Co-op Bank
The Co-op Bank is the only UK high street bank with a customer-led ethical policy, covering a range of issues from the environment to animal welfare.
It currently gives £110 to people who move to its no-monthly fee current account via the industry’s switching service (which involves closing your old account) and port over at least four active direct debits. If you pay in a minimum of £800 into its Everyday Rewards account you may qualify for a £5.50 reward each month.
But Move Your Money gives the Co-op an ethical score of just 51 out of 100, questioning how a bank majority-owned by hedge funds can sustain an ethical approach.
Nationwide is a building society owned by its members that is probably the likeliest destination for Co-op refugees. It scores highly on customer service, has a broad national branch network and a complete suite of current account, savings and loan deals.
Its standard Flex Account has no monthly fee, although its £10-a-month FlexPlus account is highly rated by MoneySavingExpert.com’s Martin Lewis for its range of extras, such as travel insurance, breakdown recovery and commission-free cash withdrawals abroad.
Triodos Bank has the strongest green and ethical credentials among the rivals to Co-op Bank, declaring this week that its long-awaited UK current account will open for business on 26 April. Move Your Money gives the Bristol-based bank its highest score, 92 out of 100.
But we don’t yet know the full details about its current account, and Triodos has no high street branches. It says it will only lend to organisations “who put people and the planet before profits,” and publishes details of all its borrowers.
Organisations it has lent to include chef Hugh Fearnley-Whittingstall’s River Cottage HQ, Brighton arts venue Komedia and the Big Issue Foundation Scotland.
Ecology building society is dedicated to building a greener society – but it only offers savings and mortgage deals. Based in West Yorkshire, it has little more than 10,000 customers.
Engage is the name of the new current account from selected credit unions which offers most of the things you would expect from a 21st-century bank account, from a fully functioning mobile app to a contactless debit card.
The Engage account is aimed at people “who prefer a more ethical approach to finance”, as well as those who have been rejected by the high street banks.
It is being offered by a handful of credit unions, including Lewisham Plus Credit Union in south-east London (which also trades as Bromley Plus Credit Union), Hull & East Yorkshire Credit Union and Hampshire Credit Union, with more due to sign up. But beware monthly account charges, which start at £5.95 a month.
Which is the Best Bank to Bank With?
We chose the best banks by gathering checking and savings account data from dozens of brick-and-mortar banks, credit unions and online financial institutions. In doing so, we examined thousands of data points, looking at the fees each institution charges and the deposit rates it offers.
Big banks generally had more than 500 branches across multiple states and regions. Regional banks generally had fewer than 500 branches located in one state or region. Online banks were those without branches or operating as digital financial institutions whose products are widely available online.
Our editorial team used its judgment in cases where there wasn’t a clear delineation between categories. We chose one checking account and one savings account from each institution. When an institution offered more than one checking account, we chose the one that offered free checking or the fewest barriers to avoid a monthly fee.
In cases where an institution offered multiple free checking accounts, we chose the one that paid the highest APY. If it offered more than one savings account, we chose the one that offered the highest APY at the lowest monthly fee.
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We assigned a number grade to each institution on a 100-point scale, looking at criteria including monthly service fees, interest rates, ATM fees, mobile app ratings and minimum deposit and minimum balance requirements. We gave the most weight to savings interest rates and low-cost or free checking accounts.
Best banks in America:
Bankrate collected thousands of data points to find banks and credit unions that offer the ideal combination of accounts — a free checking account (or one as cheap as possible) and a savings account that pays a high interest rate (or at least keeps the monthly fees at bay). Not many banks and credit unions do both types of accounts well. Those that do earn their title as one of the best banks in America. Here are our picks.
Best big bank: Capital One
Named America’s best big bank for the third year in a row, Capital One offers top-rated checking and savings accounts, as well as credit cards and auto loans. All of Capital One’s deposit products are fee-free, Capital One 360-branded online accounts.
- No fees or minimums: There are no minimum balance or deposit requirements, and no fees to worry about on checking and savings accounts.
- High rates: CD and savings account yields are consistently higher than what other big banks offer. Checking account customers can also earn some interest.
- Lots of branches and ATMs: Customers have access to more than 39,000 ATMs through the Allpoint network and more than 700 branches.
Best online bank: Radius Bank
Not quite a household name, Radius Bank earned the top spot among online banks and stands out for its mobile banking app, generous ATM fee rebates, and the payout on checking and savings accounts.
- Cash back on debit purchases: While most banks don’t pay perks on their checking accounts, Radius stands out for paying 1 percent cash back (or more) on certain debit purchases.
- Rebates for ATM surcharges: There are an unlimited amount of ATM fee rebates if you go out of the bank’s network.
- Low minimums to open and no minimum balance after that: The minimums to open a checking or savings account at Radius are fairly low. Just $100 to open, and no minimum balance requirement after that.
Best regional bank: Western State Bank
Western State Bank — with branches located in Arizona and North Dakota — is Bankrate’s best regional bank for the second year in a row.
- Low-cost checking: The bank offers a free checking account that keeps monthly checking service fees low.
- ATM access: Western State Bank customers have access to thousands of MoneyPass network ATMs. The bank also offers up to $20 per month in ATM fee refunds.
- Highly-rated mobile app: The bank offers a high-scoring app for Android and iOS devices.
Best credit union: Alliant Credit Union
Chicago-based Alliant Credit Union ranks as the best credit union for the second straight year.
- Competitive APY: The credit union’s High-Rate savings account currently pays 1.65 percent APY.
- Low-cost checking: Alliant’s High-Rate checking account charges no monthly service fees and doesn’t have a minimum balance requirement.
- Highly-rated app: The credit union scores high marks for its digital features and mobile app.
Lastly
Banks buy and sell things, mainly money. There is nothing particularly unethical about that. Of course, any particular banker, like any particular baker, could do something unethical.
Banks get a bad image because they tend to be involved when someone is in really bad shape financially. But blaming the banks for that is like blaming hospitals for the high death rate that coincides with those who spend the night there.
It is not that banks or hospitals are doing anything nefarious. It is just that those who go there often include those who are financially or bodily unwell.
