Ethical financial products: could switching save you money?

Could you switch to ethical products and save money? Our writer takes on the challenge to find out.

We all know or at least believe that switching to green or ethical providers for goods and services costs more.

For example, I regularly agonise over whether to buy my family an entire chicken for £2.50 or two free-range, organic chicken breasts for £6.50.

Ethics are great, but we all have a budget to stick to, so part of me has always been a little sceptical of ethical alternatives.

I’ve always worked on this assumption that it’s nice to have maybe one more ethical option but impractical to take a moral stance on every household bill and financial product.

After all, the cost of living is rising faster than wages, so why would anyone who wasn’t wealthy decide to pay more for their regular bills?

But then my loveMONEY editor challenged me to see exactly how much it would cost to ethic-up my accounts.

Here’s what I found out.

This article is being published anonymously so I can safely give particulars of my accounts without handing my financial details over to fraudsters on a digital platter.

Energy bills

Our energy bills aren’t small. We’re typically paying around £1,600 a year for gas and electricity on our dual fuel tariff from one of the big six providers.

If that sounds high, it is – but there are five of us and both my partner and I often work from home, so it’s pretty much par for the course. However, the last thing I want is to pay even more.

Interestingly, when I plug our numbers into a comparison site I immediately see that I could save £225 a year by moving to a tariff with 33% renewable electricity. But if I switch to one offering 100% renewable electricity I could still save £130 a year.

Not a bad start.

Loss or gain: Gain £130

Current account

I pay for a packaged current account. It provides my travel insurance, breakdown cover and mobile phone insurance, meaning I save money compared to buying those policies separately.

Current accounts with a more ethical stance do exist, for example the Triodos current account.

From its environmentally gentle debit card plastic to its focus on not overcharging customers with excessive penalties when they dip into the red (which is how so many major banks can afford to offer ‘free’ banking), it’s an ethical alternative.

The bank also focuses on lending money to organisations that have a positive social, environmental or cultural impact.

It would cost me £3 a month to use this account, so it’s technically vastly cheaper than my current deal at £36 a year instead of almost £150.

However, I would then need to purchase travel insurance for all of us (around £25 a year for European travel only), breakdown cover for 2 cars (for the same level of protection that’s going to be £114 a year) and mobile phone insurance (we can add that to our home insurance for an extra £45 a year).

So, with the monthly charge AND the extra protections I would need that works out at £220 a year. For me, at least, it’s cheaper to stick with my packaged account.

However, for someone who isn’t getting quite as much value out of their existing account, this could be a relatively cheap way to bank more ethically.

Loss or gain: Loss of around £70

Mortgage

It’s not that easy finding a mortgage that claims to be ethical.

I was hopeful that the Ecology Building Society might be suitable but its ethical stance suggests it might not be too interested in lending on my house, preferring applications for homes that make an environmental difference such as eco builds and renovations.

However, if I was able to persuade them to take me on as a customer then the standard variable rate offered on mortgages is 4.65% with up to 80% loan-to-value.

That is over a percentage point more than my less ethical mortgage. Even with a much lower application fee than I typically pay (£300 fee rather than the common £999), this would cost me almost £500 more a year.

However, for someone raising funds for a major renovation project or self-build, this is likely to be a very competitive product. It’s a question of finding the right product for you. Why not get started at the loveMONEY mortgage centre?

Loss or gain: Loss of around £500

Phone bill

I pay £35 a month for my smartphone, including both the handset and the data. I am all too aware of the ethical concerns surrounding how my iPhone is manufactured, with reports of poor conditions and overworked employees.

There is, surprisingly, an alternative. The Fairphone from the Phone Co-op is made with conflict-free minerals, a transparent and socially responsible supply chain, and factory employees who are paid enough and not worked into the ground.

Deals for the phone start at £22 a month with a £45 upfront cost. To match the data and minutes I currently get in my package I would need to pay £26 a month with a £45 initial payment, contracted in for 24 months.

I don’t know how good the phone is but that’s certainly a saving; I’d be £9 better off a month.

Loss or gain: £108 gain

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Savings

We currently save across three different accounts with three different banks and have prioritised the rate each time we chose a new account. Our returns are pitiful, as are most people’s at the moment, and we are not earning more than 2% anywhere.

It’s actually easy to find savings accounts that promise a high ethical stance, even from some mainstream banks.

One that caught my eye was the Charity Bank, which uses deposits to support charities and social enterprises in the UK.

My money would still be protected under the Financial Services Compensation Scheme (FSCS) but I would have to lock it away for at least 33 days – all the accounts require notice of withdrawals of between 33 days and a year.

The returns aren’t amazing. Charity Bank’s Cash ISA pays 0.90% and requires 33 days’ notice of withdrawals. That’s slightly less than my current Cash ISA, although only slightly, so it would affect my returns.

However, I might be tempted to argue that my returns are so low just now that losing a little more in order to support good causes is a small price to pay.

Loss or gain: Very small loss

So will I make the switch?

Overall, switching to entirely ethical options would cost me more over the year. However, for a surprising number of services, I would actually save money or lose very little by doing the right thing.

Instead of assuming I can’t afford to be ethical, I will certainly be looking at a wider range of options each time my bills renew.

Of course, another consideration is what ethical is – for some people investing in medical research might be taboo but, personally, I find that very ethical.

Ultimately the right ethical product and the right financial product depend on a lot of factors, including your preference and your finances.

But it’s certainly not clear-cut that ethical accounts cost more and I’ll be scrutinising my bills more carefully in the future.

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