Wednesday, October 03, 2007

Guide to Socially Conscious Banking Options

[I'm still feeling under the weather, so I'm running this post that I wrote for J.D. at Get Rich Slowly in July. The text is the same (with a few small edits) but the interest rates and other details about the accounts are updated as of today, 10/3/07.]

If you’ve ever looked into socially conscious personal finance options, you may be familiar with Socially Responsible Investing (SRI), probably in the form of mutual funds. But did you know that there’s a whole world out there of products like savings accounts and CDs that will allow you to participate in socially conscious banking?

When you put your money in a bank to earn interest, the bank is actually turning around and loaning your money out again, to earn enough to pay you plus turn a profit. When you invest in a typical bank, the bank makes investments it thinks are best based solely on financial criteria, and you don’t know where your money is flowing — it could be spent on manufacturing cluster bombs or financing companies that enrich and support the government in Sudan, to name just a few of the unsavory possibilities.

Other financial institutions, on the other hand, use a broader set of criteria — making investment decisions based on a combination of financial and social and/or environmental factors. This doesn’t just mean avoiding negative investments — it allows funding to be targeted to specific causes in order create positive social and environmental impacts. The most common institution is your standard community development bank or credit union (find one here), which helps strengthen poor and financially-underserved local communities through offering fair and affordable mortgages to residents, supporting community members’ small businesses, funding affordable housing, and the like — often as the only resort for individuals with little credit history or collateral. But there are many other options, too, if you know where to look — ways your savings can support making businesses more environmentally friendly, provide microcredit abroad, fund fair trade cooperatives, even support niches like child care or independent media.

There’s a wide range of community development/socially conscious products available, from checking and savings accounts to money market accounts and CDs, at hundreds of financial institutions. In general, the interest rates are considered market rate and are roughly comparable to what you’d find at an average bank– although they’re not always going to match the very top rates available. Here are some of the highest-earning (as of 10/07) and/or most interesting socially-conscious options I’ve found, compared with the highest interest rates currently offered (via Bankrate):

Low- or No-Minimum Savings Accounts: This is where you’ll find the biggest gap from a non-socially minded strategy. While there are dozens of community development banks that have savings accounts, you’re looking at 2% or less, usually under 1%. While this compares well to plenty of traditional banks, it’s well shy of the rates you’ll get from online high-yield accounts. Update: But now there's a high-yield account at ShoreBank!

  • ShoreBank Direct: 5.00% APY, no minimum
    • Supports the environment and community development (small businesses, affordable housing, etc) in low-income neighborhoods-- read more here
  • Compares with:, 5.17% APY, no minimum

Money Market Accounts: These accounts require minimum balances, but in return you get higher interest rates, and usually a limited ability to write checks from the account.

  • Domini Money Market Account: 4.23% APY, $2500 minimum
    • This is where I keep all my non-retirement savings. The money goes both to ShoreBank (a general community development bank) and to ShoreBank Pacific (an environmental bank).
  • Self-Help Credit Union: 4.21% APY, $500 minimum
  • Compares with: Zions Bank Money Market Account, 5.30% APY, $1000 minimum

Certificates of Deposit (CDs): In today’s interest rate climate, you can get rates in a high-yield savings account that match or beat CDs. But while savings and money market accounts have variable rates, CDs lock in interest rates, which helps protect you if rates fall. And while your money is only available at the end of the CD’s term (or with penalties), this may be an advantage for you if you want to make sure emergency fund money is only spent on emergencies.

  • Calvert Community Investment Notes: 3.0% APY, 1-10 years (not FDIC insured)
    • Can be targeted to support: International/Microcredit; Gulf Coast Recovery; Independent Media; Social Enterprise (revenue-generating businesses that promote social/environmental aims); Affordable Housing; or any of eight regions in the US
  • ShoreBank Pacific: 3.13-3.38% APY, 1-5 year CDs, $500 minimum (3.88-4.15% APY with $2500 minimum)
  • Equal Exchange: 4.45% APY 3-year CD, $1000 minimum (not FDIC insured)
    • This investment helps Equal Exchange support democratically-run fair trade farmer cooperatives of farmers and promote their coffee, tea, and chocolate products.
  • Self-Help Credit Union: 4.52-4.72% APY, 3 month-5 year CDs, $500 minimum
    • Your CD can support the broad community development mission of Self-Help, or you can target it to support child care or environmentally sustainable development.
  • Compares with: GMAC 1-5 year CDs, 4.70-4.95% APY and $500 minimum

(These are just a handful of your options; you can search for more here.)

In many cases, you’re looking at about a 1% difference in APY or less — or $10 in yearly interest earnings on every $1,000 you’re putting into savings. Even if you were to give up 5% in interest, which is about as wide a gap as possible right now, that’s only $50 a year sacrificed for every $1,000 invested.

You may decide that the benefits are well worth the cost, flat out. I know that I’m so glad to feel proud and excited rather than worried and guilty about what my savings are doing, that I don’t think much about my “missing” 1%. It’s also a sort of “automatic giving”/”pay charity first” method that makes sure I’m supporting my greater social goals on a monthly basis, which is great since I often struggle to make as many charitable donations as I intend to… mostly due to forgetfulness and procrastination on my part, but if your challenge is that you spend the money before you have the chance to give it away, this could work for you too.

And if you’re really concerned about the hit in interest earnings from switching to a socially conscious bank, and you decide that you’re unwilling to come out behind monetarily, it’s worth asking yourself: How do I feel about cutting $10-$50 a year from my charitable giving budget in exchange for putting $1,000 to work for causes that are important to me? That’s a deeply personal decision, and you’ll have to figure out what feels right to you, but it’s one well worth exploring.

For more information:

1 comment:

kyle thiermann said...

Have you checked out this 4min video yet on socially conscious banking???
Feel free to repost it.

Kyle Thiermann