Why You Shouldn't Buy Green Financial Products
The Motley Fool explains why 'green' financial products are not only expensive, but they're are a terrible way to be green.
The Motley Fool is well known for taking what is seen as a controversial view to finances. But I don't understand why it is controversial. All we do is we look at the maths of each product to establish whether it's a good idea or not. The maths can't lie, because the answer is '1' or '0' -- 'Yes' or 'No'. So, when the maths doesn't add up, we call it a '0' -- a bad product. It is usually that simple.So I find myself surprised and frustrated once again that I'm going to be controversial about another thing: green financial products. These have a lot of support from analysts and financial journalists alike, yet the maths clearly doesn't add up. Let me show you a couple of examples.Green mortgagesNorwich & Peterborough (N&P) was the first mortgage lender to offer green mortgages, almost ten years ago. They plant eight trees a year for the first five years of your mortgage, which is 40 trees if you stay with them that long.The deal is a 4-year fix at 6.38%. A £150,000 repayment mortgage over 4 years costs around £48,500 including fees and charges. If you keep the mortgage for five years, so that you get all 40 trees, you can expect it to cost around £61,600, because it reverts to N&P's variable rate for the last year.However, typing the details into our independent mortgage comparison tool, there are dozens of cheaper mortgages!To take just one example, Alliance & Leicester (A&L) has a 5-year fixed-rate mortgage with a rate of 5.79%. This would cost £46,600 over four years (although you are tied in for five) and £58,000 over the full five years, including charges.So after four years you'll have saved around £2,000 with A&L and after five you'll have saved more than £3,000:LenderCost afterfour yearsCost afterfive yearsNorwich &Peterborough£48,500£61,600Alliance &Leicester£46,600£58,000Now that I've shown you how expensive this green mortgage is, let's take a look at the environmental angle.Remember, N&P will plant 40 trees at most. But, if you want, you can plant 40 trees for £200 through the Woodland Trust. (There are plenty more tree-planting companies to compare if you search on Google.)If you really want to be green, you could take out a cheaper non-green mortgage such as A&L's, plant 200 trees and still save yourself £1,000 over four years and about £2,000 over five years!Green credit cardsThe deal with Barclaycard's green credit card, called 'Breathe', is 0% for 6 months on balance transfers with a 2.5% fee.*However, this does not compare well with market-leading credit cards. You can get 12 month balance-transfer deals with a 2% fee. Indeed, Barclaycard itself has a credit card offering 13 months with a 2.9% fee.Let's say you transfer £1,000, and that you pay it all off just before the six-month deal expires. This will cost you £25, because of the 2.5% fee.Now let's say that you put it all on the Tesco Bonus card instead, which has a 12-month deal on transfers and 2% fee. This costs you just £20.The additional advantage to Tesco's card is that you can take much longer to pay it off. So, if you saved up to pay off the debt within six months, you could leave those savings in a decent savings account for the additional six months. This way, you could make perhaps £20 or £30 in savings interest over that period.Moving on to why the Breathe card claims to be green...50% of profits made from this card go to green causes. Sadly, we don't know what these profits are. So let's take an extreme view. Let's say that Barclaycard has no costs, which means every penny in interest and fees you pay is pure profit. This means it'll donate half of everything you pay to planting trees.In that case, using the above example they will give £12.50 of the £25 fee you spent. However, with Tesco's card you'd pay just a £20 fee, which is £5 less, plus you'd have an extra £20, perhaps, in savings interest. This means you could donate £25 to green causes -- twice as much.The Breathe credit card also offers a promotional purchase rate of 5.9% on public transport. Thing is, you definitely should not be paying your travel costs by borrowing money. If you can't afford your basic travel costs, then you should seek debt advice.Next, the card offers rewards (deals) on some items it considers green. However, my take is that the vast majority of people won't save money with these deals.I haven't the space to go through each reward in detail, but rewards are another thing we constantly find costs people more money, rather than saves them money.In brief, it offers money off on British Gas for home insulation, but since when has BG been known for being a cheap company? The same can be said of the other three partners: ecotricity, Halfords and Hertz.Rewards tie you in to providers, and stop you shopping around for cheaper deals. It's much better to just get a cashback card and claim the cash reward on everything!My conclusion: 1 or 0?I only had space to review two products and I must admit I haven't researched every green financial product out there. But I've looked into a large number, and I'm yet to find a single one that efficiently contributes to a cause.You are much better off getting regular products that give you better financial benefits, and contributing directly to green causes or charities yourself. You'll do more for the environment and save more money!So green products get a 0.In my introduction I said: 'It is usually that simple'. 'Usually' is an important word though, because there are exceptions. If you know that you will not bother to go off and plant trees, for example, then getting one of these green products, like the Breathe card, will mean that at least you'll probably be doing something for the environment...but it won't be Foolish, and it won't be controversial!More: Save Money By Being Green!*I corrected this article on the morning of 11 July, because the data I was given about the Breathe card was incorrect. (It's not my fault! Honest!) What I did was remove mention of a 0% deal on purchases, which was incorrect.