Ethical and community banks and building societies

Ethical and community banking is about who owns your provider and what it does with your money. In the UK that usually means one of three things: a building society or mutual bank owned by its customers, a credit union owned by its members, or a responsible finance provider that lends in local communities. Building societies and credit unions are customer-owned financial institutions based across the UK in local communities¹, and building societies operate solely for the mutual benefit of those members and their communities².

None of this changes the basics of banking. A bank or building society account, also called a current account, is still the easiest way to access your payments³, and the money in an authorised provider is protected by the Financial Services Compensation Scheme in exactly the same way as at a high street bank. What changes is where your savings go: a credit union, for example, uses members' savings to fund loans to other credit-worthy members⁴, rather than to generate returns for outside shareholders.

This page explains the types of ethical and community provider in the UK, the accounts and mortgages they offer, how their lending policies work, how their rates and fees compare, how to join, and how to check whether a provider's ethical claims stand up.

Ownership and purpose: what makes a provider ethical or community-based

Two things usually sit behind the label "ethical". The first is ownership. Building societies and credit unions are customer-owned financial institutions based across the UK in local communities¹. A building society has no outside shareholders: it operates solely for the mutual benefit of those members and their communities². The same idea runs through credit unions, which are not-for-profit community lenders providing affordable loans and savings⁶, run by members to benefit communities rather than to make a profit⁹.

The second is what the provider does with money. Building societies often use some of their profits to support and improve the local community². Credit unions lend members' savings to other credit-worthy members of the same union⁴. Responsible finance providers go further, offering finance for social enterprises, charities and other purpose-led organisations creating social or environmental impact¹⁰. A provider can be ethical on one of these counts and not the other: a shareholder-owned bank can have a strong lending exclusion policy, and a mutual can lend in ways a particular customer disagrees with. Ownership and lending policy are separate questions, and both are worth checking before you move your money.

Mutual organisations in the UK are registered in specific legal forms, which include co-operative societies (including community benefit societies), credit unions, building societies and friendly societies¹¹. These forms matter to a customer in one practical way: they lock in the ownership model, so a building society cannot simply pay its profits out to outside investors. Members of a building society also have information rights that ordinary bank customers do not have, including a copy of the society's rules and memorandum on request, a copy of the annual summary financial statement on the society's business, a copy of the detailed annual report and accounts, and notice of the annual general meeting¹².

Types of ethical and community providers

The ethical and community banking market in the UK is made up of several distinct types of provider, each with a different structure and a different range of products.

• Building societies: mutuals owned by their members. There are 42 UK building societies, including both mutual-owned banks⁵. Most lend for house purchases and take savings from the public.
• Mutual banks: banks owned on mutual lines, counted alongside building societies in the sector's figures⁵.
• Credit unions: not-for-profit cooperatives whose members share a common bond. They provide loans, savings, bank accounts and other services to their members⁹.
• Community Development Finance Institutions (CDFIs): responsible finance providers that serve people and households, businesses and entrepreneurs, and social enterprises and charities¹³.
• Local finance institutions: providers operating in local communities that supply alternative financial services such as loans, savings accounts and advice¹⁴.

Credit unions are the most locally rooted of these. They work by all members sharing a common bond, such as living, working, studying or volunteering in a certain area, working in the same industry or for certain employers, or belonging to the same trade union⁹. Common examples include living or working in the same area, working for the same employer, and belonging to the same trade union or the same church or other association¹⁵. A credit union is a cooperative financial institution¹⁵, which means the members are the owners.

The limits of a credit union follow from its size and structure. A credit union is not a bank and cannot offer overdrafts, mortgages, electronic banking services and payment methods or business loans in the same way as a bank¹¹. For products a credit union cannot provide, the ethical options are a building society, a mutual bank or an ethical bank. The full guide to credit unions covers how they work in more detail.

Savings, current accounts and mortgages on offer

The range of products depends on the type of provider, and it is narrower than at a large high street bank.

Current accounts. A bank or building society account, also called a current account, is the easiest way to access your payments³. Credit unions also provide bank accounts and other services to their members⁹. There are lots of options, including accounts that accept those with a poor credit history³, so a damaged credit record does not rule out ethical banking. Basic bank accounts, the no-frills accounts designed for people who do not qualify for a standard account, are offered by most high street banks and some building societies¹⁶. The Co-operative Bank is among the banks required to offer fee-free basic bank accounts¹⁷, which matters if you are looking for an ethical provider with a low-cost account option. The guide to basic bank accounts explains how these work.

Savings. Building societies and credit unions both take savings. Credit unions hold members' savings and use them to fund loans to other members⁴. Building societies take savings from the public and lend them against property, which is their core business model. Savings held with either are protected in the same way as bank deposits, covered in the protection section below.

Mortgages. Building societies are significant mortgage lenders, and a number of them serve parts of the market that large banks tend to avoid. The following building societies provide finance for self and/or custom build projects: Hanley Economic, Progressive, Vernon, Bath, Loughborough, Buckinghamshire, Earl Shilton, Mansfield, Swansea, Scottish and Penrith building societies¹⁸. Self and custom build is a good example of community lending in practice: it is a niche that mutual lenders have kept open. Credit unions generally cannot offer mortgages¹¹, so for most people an ethical mortgage means a building society or an ethical bank. One limit to note: you will not be able to get a mortgage to buy a houseboat from a high street bank or building society¹⁹. The mortgages guide covers how mortgage lending works.

Loans. Credit unions provide affordable loans to their members⁶, and CDFIs lend to people and households, businesses and entrepreneurs, and social enterprises and charities¹³. Local finance institutions provide alternative financial services including loans, savings accounts and advice¹⁴.

How your money is used: lending policies and exclusions

The core promise of ethical banking is that you can see where your money goes. At a credit union the answer is direct: members' savings are used to fund loans to other credit-worthy members of the credit union⁴. The money stays within the membership circle, and the union is run to benefit communities rather than to make a profit⁹.

At a building society the answer is structural. A society takes savings from members and lends them against property, and it operates solely for the mutual benefit of those members and their communities². Many societies also use some of their profits to support and improve the local community². Because there are no outside shareholders, the choice of what to do with profits sits with the membership.

Responsible finance providers publish what they fund. They offer finance for social enterprises, charities and other purpose-led organisations creating social or environmental impact¹⁰, and CDFIs across the UK support different types of customer: people and households, businesses and entrepreneurs, and social enterprises and charities¹³. Local finance partnerships exist to tackle financial exclusion through local providers supplying loans, savings accounts and advice¹⁴.

Exclusions are the other half of an ethical lending policy: what a provider refuses to lend for. These vary by provider and are set out in each firm's own policy, so the only way to know what a specific provider excludes is to ask for or find its published policy. Some providers also support customers in difficulty in ways that go beyond lending: banks and building societies can support people whose current or former partner has interfered with their economic resources to limit their choices²⁰, and guidance for carers notes that a bank or building society should have a specialist team who can offer customers additional support²¹.

Interest rates, fees and charges compared with mainstream providers

There is no separate "ethical" price for banking. Rates and fees are set provider by provider, and the useful comparison is between the specific accounts on offer, not between the ethical sector and the mainstream as a whole.

For savings, official statistics give the market backdrop. The effective interest rate paid on individuals' new time deposits with banks and building societies was 4.42% in July 2024, down 2 basis points on the month²². In March 2024 the same measure was 4.37%, having fallen by 9 basis points²³. These figures cover banks and building societies together, so they show the general level of savings rates, not the difference between ethical and non-ethical providers. An ethical savings account can pay more or less than a mainstream one: the rate depends on the account, the term and the provider, and the only way to compare is to look at the specific accounts side by side.

For current accounts, the fee position is broadly the same across the market. The largest banks have to offer fee-free basic bank accounts, and these include Barclays and the Co-operative Bank¹⁷. All high street banks offer bankruptcy-friendly basic bank accounts²⁴, so a low-cost account is available from ethical and mainstream providers alike. Standard current accounts vary in what they charge for, and the guide to current account fees and charges covers the common ones.

Two protections apply regardless of provider. It is against the law for a bank or building society to discriminate against you, for example because of your race, sex, disability, religion or sexuality²⁵. Banks and building societies must also provide equal access to all their products and services to disabled customers under the Equality Act 2010²⁶. These are legal duties, not ethical extras, and they bind every provider in the market.

Who can open an account and how to join

Joining an ethical provider is usually a little different from opening a high street account, because membership is part of the deal.

Building societies. You become a member when you open a qualifying account, and membership brings information rights: a copy of the society's rules and memorandum on request, the annual summary financial statement, the detailed annual report and accounts, and notice of the AGM¹². Banks and building societies may not let you open some types of account unless you fall into a certain age group²⁵, so age limits on specific accounts are permitted.

Credit unions. Eligibility rests on the common bond: living, working, studying or volunteering in a certain area, working in the same industry or for certain employers, or belonging to the same trade union⁹. Once you share the bond, you can use the union's loans, savings, bank accounts and other services⁹.

Basic accounts. Basic bank accounts are not available to businesses, though charities may find the industry body UK Finance's guide on how to open a charity bank account helpful²⁷. Accounts exist that accept those with a poor credit history³, and all high street banks offer bankruptcy-friendly basic bank accounts²⁴. The guides on how to open a current account and what ID you need cover the documents and the process.

Switching. If you are moving a current account, the Current Account Switch Service is a free service that can automatically switch your current account to another bank or building society⁸. It moves your payments across and closes the old account. Check that the provider you are switching to participates, as smaller community providers may not be in the scheme. The guide to the Current Account Switch Service covers how it works, and how long a bank switch takes covers timing.

Banking day to day: apps, branches and phone

How you bank day to day depends on the provider, and this is one area where smaller ethical providers can differ most from the big banks.

Branches are a genuine strength of the building society sector. Building societies operate approximately 1,300 branches, holding a 35% share of branches across the UK⁵. Alongside digital services, that branch network is what makes many societies practical for people who want to bank in person. The Building Societies Association represents all 42 UK building societies, including both mutual-owned banks, as well as 8 of the largest and most progressive credit unions⁵.

Basic bank accounts can be used through a local branch, post office banking services, telephone, online or mobile banking¹⁶. Most banks also offer some banking services through local post offices¹⁶, which extends the reach of an account beyond the provider's own branches. The guides on banking at the Post Office and access to cash cover these routes.

Access needs are covered by rules that apply to every provider. Banks and building societies must review policies, procedures or practices that disadvantage disabled people, provide a way to access a service when there is a barrier, and produce statements in braille or provide hearing loops and talking cashpoints²⁶. Some banks have a specific page for disabled customers and specialist teams that can support people who have access needs²⁶. The UK's main current account providers have also agreed to publish better information about the services banks offer to all customers²⁶. The guide to accessible banking and extra support covers this in full.

If you lose track of an account, a search for a lost bank or building society account can be carried out by using a free application online²⁸. And if you think there may be savings in a lost account after someone dies, the same free search route applies²⁸.

Checking a provider's ethical claims

"Ethical" is a marketing word as much as a description, so it is worth checking what stands behind it before moving your money.

• Ask for the lending policy and exclusions. A provider with a real policy will publish it or send it on request. What matters is the detail: what it will not lend for, and who it lends to.
• Use the ownership model as evidence. A building society operates solely for the mutual benefit of its members and their communities², and that is a legal fact about its structure, not a claim. The same is true of credit unions as not-for-profit community lenders⁶.
• Use members' information rights. Building society members are entitled to the society's rules, the annual summary financial statement, the detailed annual report and accounts, and notice of the AGM¹². These documents show how the society actually runs its business.
• Check who the provider serves. CDFIs across the UK support different types of customers: people and households, businesses and entrepreneurs, and social enterprises and charities¹³. A provider's stated customer base tells you where the money goes.
• Look at community funding. Building societies often use some of their profits to support and improve the local community². Named local projects are checkable in a way that general claims are not.

Legislation also gives a sense of how the law thinks about community connection. Under the relevant Act, an "eligible charity" is one considered to have a special connection with the bank or building society which originally made the section 2 transfers, or which has undertaken to apply the money for the benefit of members of communities local to the branches of that bank or building society²⁹. That is a narrow legal definition, but it shows the principle: community benefit tied to a specific place and provider.

One further check that applies to any provider: if you think your credit or debit card, online bank account or cheque book have been stolen or hacked, speak to your bank or building society straight away³⁰. How a provider handles that kind of problem tells you as much about it as its marketing does.

Complaints and the Financial Ombudsman Service

The complaints route is the same at an ethical provider as anywhere else, and it is backed by law. Banks and building societies are required by law to have a written complaints process which tells customers how to make a complaint²⁵.

The process runs in two stages. First, talk to your bank or building society and give it the chance to put things right; the ombudsman's guidance on banking and IT problems is to fill in the complaint form after the firm has had the opportunity to respond, and a case handler is assigned to investigate and may ask for more information³¹. Second, if the firm's answer is not satisfactory, take the complaint to the Financial Ombudsman Service.

The ombudsman can look at complaints from individual customers, or customers who share a financial product or service, for example a shared bank account or joint mortgage³². It can also consider complaints from microenterprises and SMEs as well as consumers³³. For scam cases, the ombudsman can also look into complaints about the bank or payment service provider that received the money, considering the steps taken to recover it and whether it should have had concerns about its customer's account³⁴. Guidance for businesses on other types of complaint is published by the ombudsman³⁵.

If you have been scammed, speak to your bank, building society or credit union, which can protect and reimburse victims of certain types of fraud, and report it to Action Fraud³⁶. The Payment Services Regulations and the Banking Conduct of Business rules place obligations on banks and building societies to provide a refund for unauthorised transactions on a card³⁷. The guides on scams and fraud and unauthorised payments and refunds cover these rights.

How your money is protected

Deposit protection does not depend on a provider being ethical. The Financial Services Compensation Scheme is set up to protect you if your bank, building society or credit union runs into financial difficulty³⁸. FSCS can only protect money held by UK branches of authorised banks and building societies and credit unions⁷. That covers the whole ethical and community sector, from the largest building society to the smallest credit union, on the same terms as a high street bank.

The practical points to check are these:

• Is the provider authorised? Protection applies only to UK branches of authorised banks and building societies and credit unions⁷. If you cannot find your provider, the FSCS has a check facility for firms not listed³⁹.
• Is the account a deposit account? FSCS protects deposits. Some community and ethical products, such as investments or donations-based schemes, are not deposits and are not protected in this way.
• Are you within the limit? The scheme protects eligible deposits up to its limit per person per firm. Where two brands share one banking licence, deposits with both count together towards one limit.

The wider regulatory picture is the same across the market. The first group of providers covered by the FCA's access to cash analysis is the branches of the 14 designated banks and building societies⁴⁰, which shows how building societies sit inside the same regulatory framework as the largest banks. The guide to FSCS protection covers the limit and how it applies.