Ethical Savings: Everything You Need To Know
Finding a savings account isn’t just about having a secure place to store your money.
Many people want to make moral decisions about what to do with their money. This often includes finding an ethical savings account with a bank that shares their values.
That’s why millions of people choose to save with ethical banks. Ethical banks follow certain principles and practices to store and invest money in line with the religious and personal values of their customers.
Ethical savings accounts are becoming more popular in the UK and around the world, thanks to increasing concerns about the environment, our health, and other social issues.
This guide shares lots of useful information about ethical savings: what it means, why people use ethical banks, and how to choose an ethical savings account.
What is an ethical savings account?
An ethical savings account is a specific type of account offered by many ethical (and some traditional) banks. Ethical savings accounts lend your money to businesses that align with modern ethical and religious principles. This helps those businesses grow, so they can have a bigger impact on the world. It also means your money only supports companies that share your core values.
Unlike a current account, savings accounts help you store money over longer periods of time, helping you accumulate and grow your wealth.
What are ethical banks?
Banks work by investing money in businesses and funds around the world. These investments help the bank make a profit. While traditional banks invest in many different types of organisations, ethical banks won’t invest in companies that make specific products, or use certain practices. This includes:
- Companies that produce harmful products, such as tobacco and alcohol
- Organisations that cause damage to the environment, such as fossil fuel companies
- Companies that use child labour or other employment malpractice.
Ethical banks help individuals support positive social change and causes they care about. They’re also highly popular in Muslim communities, as they share many of the values and principles that comply with Islamic law. This is also known as Sharia-compliant banking.
Is an ethical savings account the same as a Sharia-compliant savings account?
There’s a lot of crossover between ethical savings accounts and Sharia-compliant savings accounts. However, while Sharia-compliant accounts are always ethical, not all ethical accounts comply with Sharia law.
Some ethical saving accounts pledge to support only ethically-sound companies — but there may be other aspects of Sharia-compliance they don’t adhere to, such as the prohibition of interest.
A guide to Sharia-compliant savings
Sharia-compliant savings accounts are guided by Islamic principles. In many cases, these principles align with other non-religious ethical values.
Sharia-compliant savings accounts will:
- Avoid making large profits from exploitative investments (also known as usury or riba)
- Not invest in or support businesses that use or create haram or makruh products, such as pornography, alcohol, guns, and cigarettes
- Not charge or pay interest on your savings
- Share risk equally between the bank and the customer.
Ethical savings accounts that aren’t Sharia-compliant may avoid investing in fossil fuel companies — which isn’t prohibited by Islamic law — but may also agree to pay interest on your savings. (It’s also worth noting that Islamic scholars have varying stances on interest — some believe that it’s OK to charge or pay interest, so long as the rates and charges are clear beforehand.)
As a result, it’s important to look at the details of any ethical savings account before you sign up.
Why do Muslims and non-Muslims open ethical savings accounts?
There are lots of reasons to choose an ethical savings account, such as:
- Acting in accordance with Islamic principles
- Wanting to promote socially responsible businesses
- Worries about climate change and the environment
- Preferring a low-risk approach to saving money.
You don’t have to belong to a certain religion to open a Sharia-compliant savings account. You just need to be eligible to open a UK bank account.
Choosing an ethical savings account
Deciding which ethical savings account to use is easy if you know why you’re choosing one. But if you’re still not sure how to decide, there are things to look out for.
Whether you need a Sharia-compliant account, or you want to do your bit for climate change, here are some questions to ask about the banks and accounts you’re looking at:
- Does the bank advertise themselves as Sharia-compliant? All Sharia-compliant banks will state this on their website.
- Is the bank transparent about which companies they invest in? If it’s easy to find out which companies the bank invests in, you can check if their principles align with yours.
- Does the bank invest in fossil fuel companies such as oil and gas businesses? Oil and gas companies are among the biggest contributors to climate change.
- Does the bank offer large bonuses and pay increases to its senior staff? High salaries often indicate that the bank isn’t run on ethical principles.
- What is the bank’s tax policy? Some banks store money in tax havens to prevent them from having to pay tax in the UK.
- Does the bank support socially and environmentally responsible initiatives? Some banks will run events and campaigns to promote ethical lifestyles and investments.
- Are they regulated by the FCA? Any bank or account you choose should be regulated by the Financial Conduct Authority. This ensures you and your money are protected under UK law.
Which Sharia-compliant banks are there in the UK?
As of April 2022, there are 5 Sharia-compliant licensed banks in the UK. Each bank offers a variety of account types:
- Abu Dhabi Islamic Bank (ADIB)
- Al Rayan Bank
- Bank of London & The Middle East
- Gatehouse Bank
- QIB (UK)
Other electronic money institutions such as Bloom, Kestrl, Algbra, and My Ahmed also offer innovative ethical finance support.
Other ways to save ethically
Setting up a savings account with an ethical bank isn’t the only way to save ethically. There are several alternatives to savings accounts. For example, you can also start a savings club or ROSCA, which enables your whole community to save money and build wealth.
Starting a ROSCA is a great way to save because:
- It helps your friends and family save at the same time
- It’s naturally Sharia-compliant — there’s no risk of haram activities like riba or exploitative investments
- It’s easy to manage your ROSCA with ethical technology.
Find out more about setting up a ROSCA and using it to boost wealth across your community.