What are ethical savings accounts?

What are ethical savings accounts?

Banks often use the money you deposit in your savings account to lend to others, especially to corporations and industries. Sometimes, these corporations may indulge in activities that aren’t great for people or the planet, and they may not align with your individual value system. 

Many Australians are choosing to lead a more ethical life, right from recycling to using public transport and donating to noble causes. This trend continues to show its prominence even in the banking sector as you can now indirectly support and promote environmental sustainability and other causes that matter to you by choosing banks that offer ethical savings accounts. 

What is an ethical savings account?

While the term ‘ethical banking’ might be vague, it is generally used to describe a financial institution or system that operates based on values driven by environmental and social responsibility. 

By opting for an ethical savings account, your bank ensures that your money isn’t invested in any company that engages in activities that are harmful to the environment or society.

Ethical banking can rely on negative screening or positive screening. Negative screening entails avoiding investing in companies that cause harm to the planet or people, while positive screening is actively investing in companies that do good for the planet or people. 

In general, ethical banks do not invest, trade-in, or have exposure to companies that engage in any of the following: 

  • Mining of precious minerals and other materials like coal or fossil fuels 
  • Weapons manufacturing or trading 
  • Tobacco manufacturing or trading 
  • Deforestation 
  • Human exploitation or abusing human rights 
  • Gambling 
  • Pornography or sex slave trade 
  • Cruelty towards animals 

What are the different types of ethical causes you can support?

Some banks choose to support specific causes when it comes to ethical banking. So, if you want to invest or promote a cause that you are passionate about, you can choose a bank that is actively supporting that cause as well. Some of the most common ethical causes that banks support are: 

  • Protecting the environment: Banks that focus on environmental issues will conduct thorough research on customers and business partners to ensure they are not participating in any activities that are causing damage to the planet. 
  • Protecting animal rights: Some ethical savings accounts may support institutions that protect and preserve wild and domestic animals from abuse. 
  • Protecting the community: Banks can choose to invest in local businesses and causes that directly affect the community. 

How can you switch to ethical banking?

If you want to switch to ethical banking, you need first to determine if your current bank is ethical or not. While you can ask your bank for information about where they invest money, you may also want to research and ensure that the bank isn’t supporting companies that are indulging in harmful activities. 

If your current bank isn’t ethical, it’s time to find one that is. You can assess a range of ethical banks and financial institutions, and once you find the right one, move your account to that bank. 

While browsing through your options for choosing the best ethical savings account, you may want to consider: 

  • What are the values and ethical guidelines the bank follows? 
  • What are the current investments the bank makes and who are the partners?
  • What is the quality of the products the bank offers, including competitive interest rates, product features, etc.? 
  • Does the bank have a branch in your town or city and offers a comprehensive online platform? This will enable you to support the environment while carrying out your banking activities with convenience. 

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Learn more about savings accounts

How to make money with a savings account?

Savings accounts make you money by earning interest on your savings. The more money you deposit, the longer you leave it in the account, and the higher the account’s interest rate, the more interest you’ll be paid by the bank or financial institution, and the more your wealth will grow.

To make sure your savings account makes money and doesn’t lose money, it’s important to maintain a large enough minimum balance that the annual interest earned exceeds any annual fees charged on the account.

Can I overdraft my savings account?

A lot of savings accounts won’t let you overdraw. Some will allow this feature but you’ll need to apply first. It’s best to read the fine print and check with your lender whether this is a feature they offer. It can be a helpful addition, but as your lender can charge you a fee as well as interest for going into negative numbers, it’s best to avoid overdrafting when possible.

Can you direct deposit to a savings account?

Yes. You can make one off payments or set up regular direct deposits into a savings account. This can be organised easily through online banking or by making deposits in a branch. Talk to your lender to find out the easiest way for you to set up direct deposits.

How much money should I have in my savings account?

A good rule of thumb when working out a minimum balance for your savings account is to make sure that you’ll earn more in annual interest on your savings than what you’ll be charged in annual fees.

If you’re saving with a specific goal in mind, prepare a budget so the interest you earn on your deposits will help you efficiently reach this goal. Online financial calculators may be helpful here.

How does interest work on savings accounts?

The type of interest savings accounts accrues is called compound interest. Compound interest is interest paid on the initial deposit amount, as well as the accumulated interest on money you have. This is different from simple interest where interest is paid at the end of a specified term. Compound interest allows you to earn interest on interest at a higher frequency. 

Example: John deposits $10,000 into a savings account with an interest rate of 5 per cent that he leaves untouched for 10 years. At the end of the first year he will have $10,512 in savings. After ten years, he will have saved $16,470.

Can you have a joint savings account?

Yes. Joint savings accounts can be useful for two or more people wanting to combine their savings to meet shared financial goals, including spouses, flatmates and business partners.

Some joint savings accounts require all parties to sign before they can access the money. While less convenient, this extra security can help encourage all parties to meet their shared financial goals.

Other joint savings accounts allow any of the account holders to access the money. These accounts can be convenient for financially responsible couples that trust one another implicitly. 

How to open a savings account for my child?

Some banks and financial institutions allow parents to open a bank account for their child as soon as it is born, and start depositing funds to go towards the child’s future.

Children’s savings accounts generally don’t have fees, and are structured to help develop positive financial habits by limiting withdrawals, encouraging regular deposits, and earning interest on the savings, similarly to standard savings accounts.

Can you set up direct debits from a savings account?

It’s not usually possible to set up a direct debit from your savings account to cover ongoing expenses or bills, as savings accounts are structured around growing your wealth by earning interest on regular deposits, and discouraging withdrawals.

Some transaction accounts allow you to set up direct debits and also earn interest, though you may not enjoy as much flexibility as a dedicated transaction account, or get as high an interest rate as a dedicated savings account.

What is a good interest rate for a savings account?

A good rule of thumb to keep in mind with savings accounts is to look for a rate that is higher than the CPI inflation rate. This number is constantly changing, so check the Reserve Bank of Australia’s page. If you aren’t earning interest above this then the value of your money will go backwards over time.

Can you set up a savings account online?

Yes. Several large and small banks offer online applications for savings accounts, and there are also online-only financial institutions to consider.

Online-only savings accounts are often less expensive than other savings accounts, though they may not offer the same flexibility, features, or face-to-face service as more traditional savings accounts.

How can I get a $4000 loan approved?

While personal loans and medium amount loans don’t offer guaranteed approval, there are steps you can take to help increase the likelihood of your application being approved, including:

  • Fulfilling the eligibility criteria (providing ID, proof of residency, proof of income etc.)
  • Checking your credit history (you can order one free copy of your credit file per year, and make sure that there aren’t any errors that may be bringing down your credit score)
  • Comparing carefully before applying (making multiple loan applications can mean having your credit checked multiple times, which can look bad to some lenders and reduce your chances of being approved by them)

How do I open a savings account?

Opening a savings account is a relatively simple process. If you’ve found an account with a suitable interest rate, you’ll just need to get in contact with your chosen lender via a branch, phone call or hop online to begin the process. 

You may be required to provide:

  • Personal details, including identification (driver’s license, passport etc.)
  • Tax file number
  • Employment details

Should I open multiple savings accounts with UBank?

UBank offers customers an opportunity to make the most of their savings by opening multiple savings accounts. Having multiple savings accounts with UBank may be ideal for savers tracking different goals in separate accounts. 

It’s important to note that to earn bonus interest, you will still need to meet the conditions of the UBank savings account every month. If you don’t make these deposits, you will receive the standard interest rate, which is typically lower. 

Keep in mind that you won’t earn bonus interest on your UBank savings account in the month an account is opened and if you open multiple savings accounts with UBank, you'll start earning any bonus interest the following month. 

It's also not yet known how long the special interest rate will hang around for, so please check with your bank for more information. 

What is a savings account?

A savings account is a type of bank account in which you earn interest on the money you deposit. This makes it one of the easiest and safest investment tools.