If you want the flexibility and tax efficiency of a cash ISA, but want your money to be used in an ethical way, you could consider an ethical cash ISA. A few different banks and building societies offer them paying interest between 0.5% and 1.5%. They either lend money to businesses they’ve checked out or to those that are committed to sustainability and/or an ethical approach.
Ethical cash ISAs from banks and building societies
You won’t get as high an interest rate from ethical providers as you will from high street best buys. That’s because they spend money carrying out checks on businesses they lend to that other banks don’t. However, the most competitive ethical providers only pay a little less than the non-ethical best buys (at time of writing).
SAVVY TIP: If you invested £15,240 (the maximum allowance in the tax year 2016-17) in a cash ISA paying one of the highest rates you’d earn £228.60 in interest after 12 months, assuming you put all the money into the cash ISA on day one. If you invested the same amount in a top paying ethical cash ISA (paying 1.30% AER), you’d earn £198.12 – a difference of £30.40 a year. The top paying ethical cash ISA has a 33-day notice period, so it’s a reasonable comparison.
Ethical cash ISA best buys
The best rate you can get on an ethical cash ISA is currently around 1.3% AER and there are several ethical providers paying around 1% on their ISAs, but only the Ecology building society and Co-operative bank offer easy access cash ISAs. Interestingly, over the last couple of years ethical cash ISA providers have kept their rates relatively stable – they’re less likely to have an attractive rate to lure you in which they then drop once no-one is looking.
SAVVY TIP: It’s worth knowing that you can transfer your existing cash ISAs to Charity bank, Triodos and Ecology building society. However, the Ecology only accepts full transfers (this means you have to transfer your full ISA allowance).
– Triodos bank has been in the UK since the mid 1990s, although its parent company is based in the Netherlands. Its main focus is on environmental issues and in particular, on climate change and renewable energy. It is completely open about every business it lends money to. You can find out who it lends money to in a section of the website called Know where your money goes.
The bank has two cash ISAs:
33 day online cash ISA pays 1.25% tax free (or 1.25% AER). It has a minimum deposit level of £10 and you can only operate it online.
Cash ISA, which pays interest at 0.65% AER. It also has a minimum deposit of £10 and a 33-day notice period. It’s operated online or by post.
SAVVY TIP: Triodos Bank is Dutch owned and so is a member of the Dutch bank compensation scheme, which currently compensates savers up to €100,000 of savings per person. As it’s roughly the same limit as the UK compensation scheme and savers with Triodos are only covered by the Dutch scheme, not the UK one as well.
– Charity Bank is the only bank that’s also a registered charity. It lends to charities, social enterprises and community organisations including those that would find it difficult to secure funding from traditional banking sector. It also publishes details of every loan it makes (you can find information about some of these loans on the social impact section of its website).
Charity bank’s cash ISA is a 33 day notice account. The minimum amount you can pay in is £250 and the interest rate is 1% AER.
SAVVY TIP: Although Charity bank is a registered charity, it’s covered by banking regulations in the same way as an ordinary bank. That means it is a member of the UK savings deposit protection scheme, which covers savings up to £75,000 if the bank goes bust.
– Ecology building society promotes sustainable lending through its mortgage lending policy. It provides mortgages for people who want to build, rebuild or renovate a property in a sustainable way, with applications assessed on an individual basis. The Ecology building society has a Foundations cash ISA that has a minimum deposit of £25 and no notice period. It currently pays 1.5% AER. However, you can only take out this cash ISA if you were a member of the Ecology building society on September 25th 2015.
SAVVY TIP: You can pay money in or take it out by post or online. The minimum withdrawal is £25.
The Co-operative bank
The Co-op bank has had an ethical policy, which it introduced in 1992. Its ethical policy covers a wide range of issues from human rights to the arms trade, animal welfare to environmental impact. In 2013 the bank was found to have a black hole in its finances of £1.5 billion and huge problems with governance.
SAVVY TIP: It is now 30% owned by the Co-op Group, but the majority stakeholder is a venture capital fund.
Cash ISA can be opened with a minimum deposit of £1 and there’s no notice period. Current interest rate is 0.5% AER .
Online cash ISA can be opened with a minimum deposit of £1 and there’s no notice period. Current interest rate is 0.65% AER.
SAVVY TIP: You can take money out whenever you want (minimum amount £10) online, at a Co-op bank branch or over the phone. You can pay money in by direct debit, standing order, by cheque through the post, at any Co-operative bank branch or over the counter at a Post Office branch.
– Smile is part of the Co-operative Bank and so is covered by its ethical policy. Smile’s cash ISA can also be opened with a minimum deposit of £1 and there’s no notice period. It pays 0.5% AER if you have a Smile current account and 0.31% AER if you don’t.
SAVVY TIP: You can pay money in or take it out electronically or at any of Co-operative bank’s branches. You can also pay money in by cheque at Co-operative bank branches, branches of the Post Office or by post to the Co-operative bank.
There’s a campaign called Move your money which gives you information on options other than the ‘big five’ banks (such as ethical banks, credit unions etc).
Yourethicalmoney.org is a website produced by a not for profit organisation, that has a lot of information about the different savings and banking options.
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