Ethical savings accounts explained

Ethical savings accounts are growing in popularity in the UK, as more people make an active choice to bank with financial institutions that share their values and that they consider ethical. On this page, you’ll find out more about ethical savings accounts, what Sharia-compliant banks have to do with ethical savings, and key considerations when looking for the best ethical  savings account for your needs.

The information provided here is for informational and educational purposes only and does not constitute financial advice. Please consult with a licensed financial adviser or professional before making any financial decisions. Your financial situation is unique, and the information provided may not be suitable for your specific circumstances. We are not liable for any financial decisions or actions you take based on this information.

Ethical savings accounts are offered by financial institutions that make a commitment to ensure your money isn’t invested in companies that might have a negative impact on society or the environment. Some forward-thinking account providers take it a step further by actively investing in positive initiatives, such as renewable energy projects.

Living an ethical lifestyle has become increasingly important to many people, with a focus on aspects like environmentalism, veganism, and social responsibility, and much more – even extending to the way we manage our finances. There are more ethical savings accounts available than ever before, as people look to take greater moral responsibility for their financial decisions.

When you open any savings account, your bank or building society will lend your cash deposits to various companies. This helps these companies grow and, in turn, increases profits. Ethical banking means you’re more selective about which companies your deposits are helping, aligning them with your values and beliefs.

There’s no universal definition of ‘ethical’ in the context of an ethical savings account - it's a personal choice based on the type of companies and industries you’re comfortable supporting or avoiding. 

For example, you might prefer to know that your deposits are being used to fund companies that are working to tackle climate change or those that are concerned with social responsibility. In that case, you might want to explore sustainable or green savings accounts. Conversely, you may want to avoid companies that use child labour or invest in fossil fuels.

Sharia-compliant savings accounts are types of accounts that are considered ethical. While opening an ethical savings account can be a personal choice, a Sharia-compliant savings account has certain principles to follow.

Sharia-compliant banks adhere to Islamic principles, many of which can also be considered ethical values. These principles include:

• Not charging interest on money borrowed from the bank

• Not paying interest on savings accounts (see more below)

• Not benefitting from restricted practices such as gambling, pornography, firearms, alcohol, and tobacco

• Not making high-risk investments

• Sharing profit and risk mutually between the bank and consumers

While Sharia-compliant banks don’t pay an annual equivalent rate of interest on your savings, they do pay what’s called the ‘Expected Profit Rate’ (EPR). You’ll see the EPR advertised as a percentage, making it easier to compare to the interest rates offered by traditional banks. The EPR is your share of the money that the bank makes investing your deposit. Because the profit that the bank makes can vary, so too can the EPR.

Please be aware that we will contact you in the unlikely event that an EPR changes on a Sharia-compliant Fixed Rate Bond you hold with Raisin UK. If you decide you don’t want to continue with the new rate, simply contact our Customer Service team and ask them to close your savings account. We’ll ensure the bank transfers your deposit and any profit you’ve earned to your Raisin UK Account.

Who can open a Sharia savings account?

Anyone, regardless of their religious beliefs, can open a Sharia savings account. In fact, many non-Muslims choose to do so because the principles are very closely connected with ethical banking. The expected profit rates are also typically very competitive.

Sharia savings accounts are open to all UK savers – you must simply meet the bank’s eligibility criteria, as you would if you were applying for a traditional savings account. For example, you must be aged 18 or over and provide personal identification. You can read more about our eligibility criteria in our FAQs section.

Are Sharia-compliant savings accounts secure?

As long as the bank or building society you intend to save with has been authorised by the Financial Conduct Authority (FCA) or the Prudential Regulation Authority (PRA), your savings will be protected by the Financial Services Compensation Scheme (FSCS). This means that, in the unlikely event of something happening to the bank or building society, you would be entitled to compensation of up to £85,000 per person, per banking group.

Sharia-compliant savings accounts follow core principles, but if you want to open an ethical savings account, it’s not as clear-cut. It’s important to research the banks or building societies, as well as the companies they invest in, to find out whether they match your ethical principles.

Key considerations for those thinking of opening an ethical savings account include:

1. Does the bank finance companies in the fossil fuel industry and therefore contribute to climate change?

2. What is the lending policy? Does the bank invest in companies with a positive ethical impact?

3. Does the bank disclose who it lends to? Look to see if the bank is open and transparent about its investments; otherwise, you can’t be sure where your money is being deposited.

4. Does the bank pay its senior staff excessively? Large bonuses and huge pay increases typically indicate that the bank doesn’t adhere to ethical principles.

5. Is it a mutual organisation, run for the benefit of its members? Savings accounts from mutual organisations could be a more ethical choice.

6. Do they have a robust tax policy, or are they likely to avoid tax? Unfortunately, tax avoidance is not uncommon in the banking sector.

When choosing an ethical savings account in the UK, you should consider whether there’s anything you actively want to avoid. This is really a matter of personal choice. For example, if you feel strongly about our impact on the environment, you probably wouldn’t choose to open a savings account with a bank that invests in fossil fuels or fracking.

Here are some of the different account types offering ethical savings:

• Fixed rate bonds: Some of the best interest rates are available on fixed rate ethical bonds, but keep in mind that you’ll be locking your funds away for a specific period, typically between six months and five years. This is suitable for long-term goals when you won’t need immediate access to your money.

• Notice accounts: Withdrawals require advance notice, typically between 30 and 95 days, depending on the provider. This option offers a balance of flexibility and a competitive rate, making it suitable for medium-term savings goals or when you prefer quicker access than a fixed rate bond.

• Easy access savings accounts: Easy access savings accounts offer maximum flexibility. You can withdraw and deposit funds at your convenience, although the interest rates are generally lower compared to fixed rate bonds and notice savings accounts. Easy access accounts can be suitable for emergency funds.

• Regular savings accounts: In a regular savings account, you deposit cash monthly and interest is usually paid yearly. While it can offer better interest rates than standard fixed or easy access accounts, it comes with strict terms like limited withdrawals and mandatory monthly deposits.

When choosing the best ethical savings account for you, it can help to consider both your values and financial situation. Perhaps you have a preference for a green savings account that supports environmentally-focused projects, and offers different levels of access and interest rates. Your choice should reflect not only ethical considerations but also your individual financial goals and preferences.

The only way you can really check if your savings account is ethical is to ask your bank or building society or look on their website. Check their website for information; if there’s no mention of ethical savings policies, it’s unlikely that they’ll offer ethical savings accounts. It might also be worth visiting independent ethical websites such as the Ethical Consumer, which compares the ethical ratings of various financial institutions, consumer brands, and products.

While you might find some high-street banks among the ethical savings providers, most ethical savings accounts in the UK are currently offered by smaller banks and building societies. Some of the most ethical banks in the UK include:

• Gatehouse Bank

• QIB UK

• Tandem Bank

• Nationwide

• Triodos Bank

• Starling Bank