Ethical savings accounts: make your cash green

NS&I’s Green Savings Bond helps fund environmentally sound projects, but there are better eco-friendly options for your money, says Ruth Jackson-Kirby.

Ethical investing is becoming more popular as savers want to know their investments aren’t harming the planet. If you’re concerned about this, it’s also important to look into what the cash in your bank account is funding.  

When you deposit cash with a bank, it doesn’t sit around in a vault waiting for you to come back and withdraw it. Banks use their cash deposits to fund lending. This could be mortgages or car loans, but also larger corporate loans that could be funding industries that are damaging the planet, such as airlines or oil companies.

You can avoid this by putting your cash into an ethical bank account. These are banks, or in some cases just accounts, where your money is used to fund companies and projects that aim to improve the planet and society.

The new kid on the block

One such example is the National Savings & Investments (NS&I) Green Savings Bond. NS&I is backed by the Treasury and this account has been launched to help the government fund its efforts to hit net-zero carbon emissions by 2050. The idea is we all pour our money into the Green Savings Bond and for the government to use that cash to fund projects such as offshore wind farms, carbon capture projects and making old buildings more energy efficient.

While the account has noble intentions the initial launch was a let down. Back in October the three-year fixed rate account was paying 0.65%. It has been refreshed and the rate has been doubled to 1.3%. NS&I has said the rise simply reflected interest rate movements within the market, but experts aren’t convinced. “What’s more likely is that the initial launch, which at the time offered the same interest rate as an easy-access current account, went down like a lead balloon and NS&I had no choice but to raise the rate to draw in more money and reach its funding targets,” Laura Suter, head of personal finance at AJ Bell, told the Financial Times.

Shop around to secure the best rates 

That said, if you are looking for an ethical savings account, then you can still do better than the Green Savings Bond. NS&I pays 1.3% over three years but Tandem Bank’s three-year fixed saver pays 1.9%. The challenger bank turned environmentally friendly last year and now uses deposits to fund green lending, although it is still a bit vague about exactly how it is using your money to improve the planet. 

You could get an even better rate with Al Rayan Bank’s 36-month fixed term deposit with an expected rate of 2.01%. This is sharia banking, which means your money cannot be used to fund businesses forbidden under Islamic law. That includes alcohol, tobacco and gambling so it is an ethical option, but not specifically green (ie, sharia loans are not necessarily used to improve the planet – they could still fund oil and gas projects, for example).

Options for the shorter term

With all these accounts you are locking your money away for three years, in which time interest rates could rise, leaving you behind. Just look at those who invested in the first NS&I Green Bond back in October. A few months later the interest rate doubled but they are stuck earning 0.65% for another two and a half years.

If you want a green savings account but don’t want to be locked into a long-term rate then another option is RCI Bank’s 14-day notice E-Volve Savings Account. This account pays 0.7% and your money is used to fund electric vehicles and charging facilities. You can beat this with non-green accounts with longer notice periods, but it is a competitive rate for such a short notice period. However, Tandem pays 0.77% on an instant-access green savings account, which is almost at the top of the tables for any instant-access account. It is only beaten by Cynergy Bank’s 0.84% (which is just for one year, after which it reverts to 0.3%). 

Ethical and green cash accounts tend to offer slightly less competitive rates than traditional accounts, but the gap is closing. If these accounts prove popular it will hopefully encourage the wider banking industry to start offering similar products.

Recommended

Avoid easyJet shares – there are better airlines to invest in
Share tips

Avoid easyJet shares – there are better airlines to invest in

EasyJet used to be one of Europe’s most impressive airlines. But now it is facing challenges on all fronts and losing out to the competition. Rupert …
19 May 2022
Despite the crypto crash, bitcoin still has a bright future
Bitcoin & crypto

Despite the crypto crash, bitcoin still has a bright future

Cryptocurrencies have crashed hard, with bitcoin down by more than 50% from its peak. But, says Dominic Frisby, bitcoin still has a future – it is the…
19 May 2022
Do Kwon: the King of Crypto Lunatics
People

Do Kwon: the King of Crypto Lunatics

Cryptocurrency entrepreneur Do Kwon liked to ruffle feathers and stir things up in his industry. But the collapse of his empire has left investors des…
19 May 2022
Tech stock crash – dotcom bust 2.0 is upon us
Tech stocks

Tech stock crash – dotcom bust 2.0 is upon us

It’s carnage in the tech sector as the market crashes. But that spells opportunity for canny investors, says Matthew Lynn
19 May 2022

Most Popular

Get set for another debt binge as real interest rates fall
UK Economy

Get set for another debt binge as real interest rates fall

Despite the fuss about rising interest rates, they’re falling in real terms. That will blow up a wild bubble, says Matthew Lynn.
15 May 2022
Is the oil market heading for a supply glut?
Oil

Is the oil market heading for a supply glut?

Many people assume that the high oil price is here to stay – and could well go higher. But we’ve been here before, says Max King. History suggests tha…
16 May 2022
Value is starting to emerge in the markets
Investment strategy

Value is starting to emerge in the markets

If you are looking for long-term value in the markets, some is beginning to emerge, says Merryn Somerset Webb. Indeed, you may soon be able to buy tra…
16 May 2022