Saving for the greater good, not the rates: how to get a better reward from your cash

Chronically low interest rates on savings accounts mean many people will see their money depleted over time as they struggle to keep up with inflation.

Cash accounts are particularly unrewarding for savers, with the most competitive paying just 1.5pc, a weak offer compared to the current rate of inflation of 2.7pc.

Even a saver who had £10,000 to hold in instantly accessible cash would only earn £100 more in interest a year with this best-buy account than they would with a laggard account paying out just 0.4pc.

For a more rewarding savings experience, some are forgetting about rates altogether and putting their money into accounts where they know it will do some good for others.

James Lark, 38, a music teacher from Hertfordshire, was disillusioned with the low-interest accounts on offer. Instead, he decided to open an ethical cash Isa.

“There wasn’t a huge difference in the rates being offered,” he said. “I wanted to be sure I was investing responsibly and somewhere I could have a clear idea of what the money is being used for.

“There seems to be a lack of awareness that when you put your money in the bank, it will be used and invested elsewhere. The information about how banks use your money isn’t easy to find and is not something they seem to want to advertise.”

So-called ethical banks use their stockpiles of cash to provide loans for charities and local enterprises, meaning your savings could be used to help finance projects in your neighbourhood.

For example, £1m lent by an ethical bank helped the East Lancashire Deaf Society, a charity that supports young deaf people, renovate some of the dilapidated parts of its property to provide training facilities. The improvements included a carpentry workshop and classroom that are used to help members gain experience before they join the workforce.

A number of these members have since gone on to work as apprentices in the local area, including at a nursery, restaurant and a decorator’s.

The charity’s director, Doug Alker, said getting the financing from traditional lenders proved difficult: “The overwhelming response we got from the main banks was that the project was too speculative”.

Mr Alker said some of the interest payments on the loans would be invested by the bank into other aid and charity projects, and that it is “crucial” people think about where they save.

Gilly Simpson, from Holne on Dartmoor, said her community would not have been able to rescue their shop and tea room if it hadn’t been for funding provided by ethical savers.

The tea rooms were built by a local couple in 2008, but when the manager came to retire, no one in the area was in a position to take over. Residents joined forces with members of a nearby village and formed a committee that would keep the tea rooms going.

“In 2014, the landlord was moving away from the area and wanted to sell the premises,” Mrs Simpson said. “We managed to raise the bulk of the money from selling community shares but required some extra funding.”

A £75,000 loan helped to keep the tea rooms at the “heart of the community”, which she said “provides a real lifeline for certain people who might otherwise struggle with loneliness and isolation”.

There are only four “truly ethical” banks that offer savings alternatives in Britain, according to Moneyfacts, the comparison site. They are: Charity Bank, The Co-operative Bank, Ecology Building Society and Triodos Bank.

However, experts say attitudes towards ethical and social saving are changing. More than half of people would switch banks if they knew their savings would be used to make a “positive difference”, or if they discovered their current savings were having a negative impact, according to Opinium Research, a consultancy.

It also found that almost three quarters of the population believe banks and other financial service providers need to be more transparent about where savings are lent.

Edward Siegel of Charity Bank said: “We are seeing a positive shift in attitudes towards social investment and ethical business, particularly among younger generations who are keen to align themselves with like-minded businesses and banks that are open and transparent.

“A lot of savers don’t have any idea where their money is being invested but it’s now very much within their power to question this and take control over how and where their money is used.”

Mr Siegel added that it wasn’t just individual savers who could put their money to good use: “Businesses and charities also have the power to make a positive impact on society by moving their savings to an ethical home, which could help improve their brand trust and reputation at the same time.”

Bevis Watts, of Triodos Bank, said: “Many savers are putting positive impact and transparency at their top of their savings criteria. It is time that banks and other financial providers offered the transparency that people deserve – the vast majority of savers currently have no idea where their bank lends their money.

“Money doesn’t have to be invested in the arms trade, fossil fuels and tobacco – it can be used to do good things that help build the society we want to live in.”

• For more money news sign up for our newsletter

Mr Watts said consumers were beginning to “align their values with the food they choose to buy, the transport they take, and the energy they consume”. He added: “Now they have that choice with their daily finances, using their money as a force for good.”