Ethical banking

Ethical banks have fundamental principles which govern the way they invest their customers’ money. Ethical banking is when a financial institution or banking provider tries to positively impact society, the local community and/or the environment. What exactly they do to be an ethical bank will depend on the bank’s ethics, values and principles and the type of impact they want to make.

Ethical banks have policies in place that prevent them from investing in certain types of companies, such as companies that test on animals, employ child labour or make cigarettes. Ethical banks don’t just prevent money from going into these types of industry, but they also tend to take positive action. Most ethical banks in the UK, such as Gatehouse Bank, a Raisin UK partner bank, also promote environmental and social progression.

The importance of ethical banking is that it encourages transparency, helps build strong communities, and establishes a set of principles and ideals governing how money moves around and who it goes to. Although their aim is still to make a profit, just like any other financial institution, ethical banks seek to do so without compromising on principles or causing harm. 

With more social awareness existing around the effects that consumerism can have on issues such as climate change and human and animal rights, more people are making a conscious effort to act more ethically. Ethical banking and ethical investments have more than tripled since 2000.

Many people join ethical banks that uphold the same values they have themselves. It’s a way of keeping both your money and your morals aligned. You might consider opening an ethical banking savings account if you want to be certain that your money won’t be invested in companies you would consider unethical.

Many Sharia banking providers are considered ethical because they follow Islamic laws, meaning they won’t invest in prohibited practices such as alcohol, tobacco or gambling. You can apply for Sharia and other ethical bank accounts from the providers in the table below. 

Some of the most ethical banks in the UK are the following:

• Gatehouse Bank (Sharia)
• The Charity Bank
• Tridos Bank
• Ecology Building Society
• QIB UK (Sharia)
• Al Rayan Bank (Sharia)

If you’re looking for more information on individual banks’ ethical performance, the Good Shopping Guide has a handy table that ranks institutions based on a range of ethical criteria.  You can also read more about different ethical banks on the Ethical Consumer website.

When you deposit money in any financial institution, you are trusting that financial institution to decide where your money goes between the time you make a deposit and when your money is returned to you. That’s because the bank will lend money and make investments to make a profit on the capital they hold. 

The main difference between a ‘traditional’ bank and an ethical bank is which companies they consider investing in. Traditional banks will typically deal with any company they think will make a profit. Ethical banks will ensure that your money is lent to companies that do not negatively affect our society or the environment.

Banks are run to maximise profits for their shareholders, which is how they make their money. Building societies, on the other hand, are owned and run by their members, which is just another term for customers. Members are also able to vote at annual general meetings (AGMs) and stand for election to the board, which means building societies could be seen as more ethical than banks. 

Another reason building societies may seem more ethical is because under the Building Societies Act 1986, it’s stipulated that at least 75% of business assets must be loans that are fully secured on residential property, as opposed to investing money into companies whose ethics may not be aligned with their customers’ personal beliefs. 

A sustainable bank is a financial institution that recognises the importance of social and ecological criteria when it comes to the creation and use of financial services. In simpler terms, a sustainable bank invests in activities such as energy efficiency, sustainable agriculture, healthcare or education as opposed to damaging industries such as oil or unsustainable farming.

While some ethical banks might not make as much profit as they deal with a fewer number of businesses, this shouldn’t affect the interest you might be able to earn on a savings account

Sharia banking could be considered a type of ethical banking. Also known as Shariah, Shari’a or Islamic banking, Sharia banking follows Islamic law. That means your money won’t be used to fund businesses prohibited under Sharia principles, such as alcohol, tobacco or gambling. Through a Sharia savings account, you’ll earn profit rather than interest, as earning interest is against Islamic law.

Many ethical banks provide online banking services, and you can also apply for savings accounts from a range of ethical banks at Raisin UK. We offer savings accounts from some of the best ethical banks in the UK, and it’s quick, free and easy to open a savings account online.

Simply register for a Raisin UK Account and apply for the ethical savings account that’s right for you.