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What are ethical savings accounts?

Jodie Humphries avatar
Jodie Humphries
- 5 min read
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.

Disclaimer

This article is over two years old, last updated on January 27, 2021. While RateCity makes best efforts to update every important article regularly, the information in this piece may not be as relevant as it once was. Alternatively, please consider checking recent savings accounts articles.

How do you know if your bank is ethical?

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, also known as Environmental Social Governance (ESG) investing

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 

That being said, everybody’s definition of ethical may not match and it’s important that you think about the causes that matter to you. For example, you may feel strongly about animal rights or environmental issues. Once you’ve figured out the causes closest to your heart, you could check what your bank thinks about them. For instance, you may want to check the industries your bank supports. 

If your bank has a corporate social responsibility of some kind, you could also find out more about it to understand their values or the causes they support. It may also help to check the company’s sustainability report, or any ethical or environmental policies posted on their website

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

When it comes to ethical banking, some banks choose to support specific causes while others may decide to avoid putting money in some industries. 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?

By choosing an ethical savings account, you could ensure that your bank doesn’t invest your money in any company that engages in activities that are harmful to the environment or society. However, different banks may have different values or guiding principles when it comes to ethical investing.

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 or you think it is engaging with greenwashing, it’s time to revisit your options and find a bank that matches your moral compass. 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. 

Besides using an ethical savings account to park your money, it’s also possible to use your super to do some good to the world. You could choose to shift your super to an ethical super fund that focusses entirely on ethical options, such as Australian Ethical super fund. You can also find super funds that offer a mix of investment options, including some that align to your ethical standards. Take time to consider the various options and choose a super fund that best matches your financial situation and needs.

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Product database updated 20 Jun, 2024

This article was reviewed by Personal Finance Editor Alex Ritchie before it was published as part of RateCity's Fact Check process.