The large majority of savers (75 per cent) currently have no idea where their bank lends their money to. This is despite the fact that most people (63 per cent) state they want their savings to have a positive impact, according to research from Triodos.
The sustainable and ethical bank surveyed 2,003 people who have some savings. The research reveals that the transition to a low-carbon economy is the top priority for savers wanting to make a positive difference.
Nearly half (47 per cent) said they would like their money to be used to help develop renewable energy, while four out of ten (41 per cent) wanted to support energy efficiency.
Savers also identified social housing (41 per cent), community/society groups (28 per cent), human rights and labour rights (28 per cent), urban regeneration (24 per cent) and sustainable business (23) as areas they would like their money to be invested in.
The research did not include the choice of non-ethical investments, such as investment in UK smaller businesses. Nevertheless, it is telling that across the board, two thirds of savers think that banks and other financial providers need to be more transparent when it comes to disclosing where customers' savings are lent.
When Money Observer approached HSBC, for instance, to find out whether it is possible to view the loans it makes with its customers’ money, it referred us to a 300-page document, which provides no clear or transparent way of knowing exactly what companies it invests in.
Perhaps surprisingly, the challenger banks are equally non-transparent when it comes to where customers’ money goes. When we approached Metro Bank, we received a very general response: ‘The money that our retail and business customers have in current and savings accounts fund a wide range of lending to our business and personal customers.
‘We use it to help people purchase their homes and to help small and medium sized businesses grow. We also keep a significant portion in cash and highly liquid investments, such as government debt, to ensure we have money available when our customers need it.’
At Triodos, however, customers can easily see where their money is going. The bank publishes details of every loan it makes, so that savers can see exactly where their money is being invested.
Huw Davies, head of retail banking at Triodos Bank UK, says: ‘Many people feel they are being kept in the dark about how their money is used by banks and want greater transparency.
‘They want to feel proud that, while their money is growing, they are helping organisations that are making a positive difference to people and the planet. At Triodos, we only lend to projects and organisations that have a positive social or environmental impact.’
Further, Triodos argues that most people’s bank accounts are free because they are being paid for by pricey overdraft and credit card charges. These charges unfairly penalise those who are the most financially vulnerable in society.
Recently, Triodos launched a new ethical current account that challenges the ‘free banking’ model. In this new account, Triodos does not allow unarranged overdrafts, with unpaid items instead subject to a flat £5 fee, rather than the hefty penalties imposed by other banks.
Someone with a Triodos Bank agreed overdraft of £600 used for 7 days each month would incur overdraft charges of £23.06 a year, compared with £84 at Santander and Halifax (£1 per day) or £96.30 with TSB and £97.24 with NatWest/RB, according to Andrew Hagger of moneycomms.co.uk.
However, the account will not pay any interest and there are no cash incentives to switch from your current provider, as Triodos argues that its customers bank with it because they agree with its ethical strategy.
Account holders pay a £3 monthly fee and receive a debit card made from renewable plastic. Triodos Bank does not have any physical branches, which means this account can be accessed online and on its mobile banking app.
‘Hats off to Triodos Bank for being up-front about the real cost of banking,’ says Andrew Hagger, savings expert at moneycomms.co.uk. He suggests that it may be the natural successor to the Co-operative Bank for customers looking for an ethical approach.
‘This new bank account will not suit everybody, but it is not currently intended to be a mass market product. Not all consumers choose a bank account based on ‘what’s in it for them’; some will happily pay the small monthly cost, safe in the knowledge that their bank is using money for socially responsible and ethical purposes.’
He adds that those people will also prefer a transparent and sustainable service rather than the mythical ‘free banking’ model. ‘It’s a shame that some of the commercially driven banking giants don’t have a similar outlook instead of fleecing those customers who can least afford exorbitant overdraft fees.’