How Do Socially Responsible Banks Work?

Socially Responsible Investing

KidStock/Blend Images/Getty Images

You may have heard of socially responsible investing, or SRI. But, investing isn't the only corner of the financial universe that's moving toward social responsibility. You now have the option to work with socially responsible banks.

How do socially responsible banks work, and how can it benefit you to move your own banking to one?

What Is Socially Responsible Banking?

When banks loan money, they’re typically looking at it primarily from a financial angle. Is this borrower or business likely to repay? What will the return on the loan be? Does it represent the type of investment that’s within the bank’s lending niche?

It’s all about money.

Unfortunately, when you bank with a particular institution, you don't have any control over where your money is invested or loaned out. It's entirely possible the bank is using your money for purposes that are at odds with your personal values.

Enter socially responsible banks. They move away from strict reliance on financials, and look closely at the type of enterprises they’re lending to. They'll work to avoid lending to businesses that may be having a negative impact on the planet, the community, or on people. Instead, they’ll lend to those enterprises that are more socially focused.

In most other respects, they function just like other banks that don't have a socially responsible orientation. 

How Do Socially Responsible Banks Work?

Socially responsible banks shift banking to a values-based model. That means they emphasize social and environmental practices in the running of their operations.

That responsibility starts with the bank itself, as a business entity. Many emphasize equal pay, and a willingness to pay a living wage to their employees.

They enforce diverse hiring practices, all the way up to the bank’s board of directors, as well as implementing sustainable energy use in their buildings and branches.

They also work toward transparent business practices, as well as an emphasis on community development. That can involve providing affordable banking services to minorities and lower-income consumers.

The Benefits of Socially Responsible Banks

In addition to the fact that socially responsible banks lend money to ventures that have a more positive social impact, there are also certain practical benefits for a banking consumer.

For example, many socially responsible banks pay higher rates of interest than regular banks and credit unions. Many also offer bank accounts with no monthly fees, as well as free ATM access.

Not only are socially responsible banks changing the way they lend money, but they’re also providing banking services to customers in a way that's less predatory.

Some even provide ratings on the merchants and vendors you use your debit card at. For example, they'll give a higher rating to a merchant that has a reputation for being more socially responsible, and a lower one to a vendor that’s less so. This will help you gradually change your spending patterns to align them in a more socially responsible way.

Examples of Socially Responsible Banks

If you're not familiar with socially responsible banks, here are some examples: 

  • Amalgamated Bank is working to build America’s largest socially responsible bank. They’ve been around for more than 100 years and are working to make the world more just, compassionate, and sustainable. They offer socially responsible investing, as well as a “Give-Back Savings” account, The account pays 1% APY and donates to participating organizations of your choice an amount equal to half the interest you earn.
  • Aspiration Bank allows you to set the fee for your banking services or investment products. They also commit to donating 10% of earnings to charity and pledge to bring financial choices to everyone, and not just the rich. Their Summit Account pays 1% APY and has zero fees at every ATM in the world.
  • Sunrise Bank is a family owned bank that strives for financial inclusion for all. Branches are located in the urban core of the Minneapolis-Saint Paul area, and the bank emphasizes serving inner-city communities. On the lending front, businesses are held to financial sustainability goals, as well as demonstrating progress in positive social impact.

This is just a small sampling of the dozens of socially responsible banks that are springing up across the country.

Should You Bank with a Socially Responsible Bank?

If you value socially responsible investing, and working with a financial institution that emphasizes people over profits, this is a banking function well worth investigating.

Not only do these banks lend money in a socially responsible way, but they also emphasize better treatment of their employees, and of their customers. You'll often find higher interest rates and lower fees than what is available at conventional banks.

If you already participate in socially responsible investing, then socially responsible banking is a natural progression.