Ethical savings accounts: how do rates compare?

Ethical savings accounts can now beat miserly high street accounts, but how do they fare against the best buy savings deals?

Over the last couple of months, high street banks have slashed the rates on offer to millions of their customers.

While this is obviously bad news for many hard-pressed savers, it does mean ethical savings accounts suddenly look a lot more attractive compared to the banking giants.

For example, NatWest offers an easy access 'savings' account offering 0.01% and a regular saver account with 1% – both of these rates can be beaten by ethical players like Ecology Building Society and Triodos Bank, respectively.

Now, given the ridiculously low bar set by high street players, beating them is the very least savers should expect.

So how do these ethical deals compare against the chart-toppers?

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Going green could leave you in the red

We'll go into specific rate comparisons later in this piece, but the bottom line is that green accounts are miles off the best in market.

In fact, in order to gain the peace of mind that comes with ethical savings, you're looking at earning roughly half as much as the best buys. 

Now, that doesn't mean you shouldn’t automatically rule these accounts out, said Sarah Coles, personal finance analyst at Hargreaves Lansdown and member of the loveMONEY Expert Panel.

“In 2020, ethics and values have taken centre stage," said Coles.

"This isn’t a debate rumbling on in dusty institutions: it’s happening around the world and on the street outside right now.

“We can make a significant impact by putting our money where our mouth is, and savings are no exception.

“There are a number of institutions aligned to causes close to our hearts, and organisations committed to ethical and sustainable projects.”

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How do ethical banks work?

Before we compare the top accounts on offer, it’s worth pointing out exactly what we mean by ethical and look at how they generally work.

After all, your priorities could be significantly different to mine.

Some banks focus on supporting environmental causes, charities, social enterprises, sustainability, or even local causes.

In some cases, ethical banks may split the return on your savings between you and a good cause, which is why the interest rates are lower.

Alternatively, your money may be used to fund loans for charities, social enterprises or ethical projects.

It’s worth checking to see whether the bank or building society’s values align with your own before opening an account.

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Should you focus on Shariah?

Shariah banks have been around for some time and tend to offer competitive – even table-topping at times – rates.

They are also undoubtedly more ethical than traditional savings accounts  – they don’t invest in firms that benefit from pornography, gambling, military equipment, alcohol or weapons, for example.

It's fair to say these would be areas most 'ethical savers' would be keen to avoid.

However, Shariah banks could choose to invest in oil companies and other areas that may conflict with your values.

Also, as these banks follow Islamic law, you earn an ‘expected profit rate’ (which Shariah banks have a great track record of paying) instead of interest, so it's not strictly a traditional savings account.

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How ethical accounts stack up

Below is a table rounding up some of the best savings rates on the market, compared to those on offer from ethical and Shariah-compliant banks.

It’s worth flagging that National Savings & Investments (NS&I) offer some products that have the top rates, which are backed 100% by the UK Government, making them an attractive place to put your money.

*Expected profit rate
**Triodos offers a fixed rate for one year before changing to a regular saver account
*** Equivalent prize rate

As we mentioned before, ethical savings accounts don’t beat the top rates available elsewhere, although the difference in how much your money earns varies depending on the type of account.

For example, the interest rate is more than double at 2.75% for a regular saver account with first direct, HSBC or Marks & Spencer compared with Ecology Building Society (1.25%).

Yet Ecology might be attractive despite the lower rate if you’re passionate about protecting the environment as they offer mortgages for properties and projects that respect the environment.

The smallest difference in interest rates (above) is for Cash ISAs at 0.5% as Ecology offers 0.6% compared to Al Rayan with 1.1%.

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What type of account should I choose?

Ultimately, the choice is yours.

If you’re keen to support causes you care about, you can opt for an ethical bank although you will get a less competitive rate, which is worth taking into consideration.   

Of course, there’s more to choosing a savings account than the interest on offer. You should look at how you can contribute to your savings and access them, as well as whether this suits your needs.

So, for example, you shouldn’t opt for a fixed rate bond if you might need to access that cash over that time period.

Or, you shouldn’t opt for a regular saver if you’re unsure whether you can contribute the required amount every month.

Rates correct at the time of publication.