I want an ethical account… but will I be worse off?

I’m thinking about opening an ethical bank account.

What are my options and does switching really make a difference?

Do I also have to accept lower rates and worse service and internet banking than the big giants offer? RV, Essex

Ruth Jackson-Kirby replies: When you deposit money with a bank or mortgage bank, it lends it out to other customers and companies.

You have no control over who your money is lent to. There is a risk that it could be used to fund things that you are not happy with.

Ethical banks make it a point not to lend money to the most controversial companies, such as gun or gambling companies.

Each ethical bank has a different set of rules that determine what type of company it will and will not lend to.

Before choosing one, consider your own ethics and find an account that suits them.

There are several ethical banks and building societies in the UK and opening an account with one of them doesn’t have to mean taking a step back in terms of service and technology.

However, if ethics is not your only consideration when choosing a bank, it makes sense to check out online reviews of various providers before making your choice. If personal banking is important to you, your options are also limited.

If you are looking for a new checking account, you have a number of options. Triodos Bank only lends your money to companies and organizations that have a positive social, environmental or cultural impact.

You can see exactly to whom Triodos lends money via a map on its website. The checking account comes with online and app-based banking, as well as a biodegradable contactless card. However, it has a monthly fee of £3 and no bank branches.

Alternatively, Cumberland Building Society offers a Plus current account with no monthly fees. It does not invest its members’ money in stocks, so that rules out the possibility of unethical investments.

Last year it donated £100,000 to local community, educational and charitable projects.

Some people consider building associations to be a more ethical option than banks because they serve their members rather than shareholders and tend to invest in their local communities. Nationwide is the largest to offer a checking account.

One of the best-known ethical savings accounts is the Green Savings Bond of National Savings & Investing. The account invests your money in green projects chosen by the government.

Think of building wind farms at sea, insulating homes, making public transport greener and accelerating the transition to electric driving.

The bond holds your money for three years and pays three percent interest per year. This is fairly competitive – the most generous three-year bond on the market pays 3.81 percent.

However, it may not be the best time to lock up your money for several years. Interest rates are rising and your return may look less attractive in a few months.

For example, people who invested in the three-year Green Savings Bond last October only get 0.65 percent.

Tandem Bank’s one-year regular saver pays 3.26 percent and can be a good alternative.

The challenger bank was founded in 2014, but declared last year that it had become an eco-friendly bank.

It’s a little vague on what exactly that means, but by the end of 2021 it had donated £230 million to help people improve the energy efficiency of their homes.

If you are looking for a direct access savings account, you can get a best buy rate of 2.1 percent at Al Rayan Bank.

While this is not a standard ethical bank, it does comply with Sharia banking rules.

This means that your money cannot be lent to companies that are prohibited by Islamic law. In practice, that means no alcohol, tobacco or gambling businesses, but it could be loaned to gas or oil companies.

If you are willing to give two weeks notice before withdrawing your money, RCI Bank’s E-Volve Savings Account with 14 days notice is attractive. It pays 1.7 percent – a best buy on a short-term account.

All the money that is deposited will be used to finance the production of electric vehicles and charging stations.

Finally, don’t forget the cash Isas, with which you can earn tax-free interest. Triodos Bank has a direct access Isa that pays 1.15 percent, although that is significantly lower than the best-buy rate of 1.85 percent.

Alternatively, the Shariah-compliant Gatehouse Bank has a one-year Woodland Cash Isa that pays 2.5 percent interest.