Late last year, I wrote about why it was good to have “FOBO” – that’s the fear of better options – when it comes to banking. Pre-COVID, numerous banks were offering decent cash sums to switch to their current accounts, including HSBC. But seven months on, I’m dismayed by HSBC’s stance over China’s new security laws in Hong Kong. So what are the risks and rewards of switching again? I delve into the new world of banking and try to weigh up some difficult trade-offs…
First it was Co-op Bank. Then it was TSB. Now it’s HSBC…but for how much longer?
Last year, I decided that my moral banking dream was over. For most of my twenties, I had tried to avoid using the main high street banks (HSBC, RBS, Lloyds and Barclays) and mostly succeeded.
Yes, I was young, idealistic and furious at their bad behaviour (yes, I may have dropped by those Occupy tents outside St Pauls once or twice…) But let’s face it – the choice was made a LOT easier by a new raft of ‘challenger’ banks, untarnished by the 2008 crash and encouraged by new rules designed to break the UK’s banking monopoly. Oh, and it helped that these new banks were often prepared to pay you to switch to them. As a cash-strapped millennial, I liked getting money for nothing. A lot.
A brief history of my banking
I was initially seduced by Co-op Bank, still in fairness the only bank in the UK to have a customer-led ethical policy. But the £200 I got for moving away from my uni bank account didn’t harm either. Plus, the overdraft was fee-free, so I only paid pennies for borrowing £100 here or there.
Then Co-op messed up royally with its botched takeover of Britannia Bank and far-from-moral management. So I quickly moved on and found a substitute in TSB. Here was a new community-focused bank that also happened to offer me £150. Its overdraft terms were not so decent but I had gradually got back into the black over time so this didn’t matter as much for me.
Looking back, I now realise this was a rare bright spot in recent banking history where your moral and financial interests could mostly align if you stayed on the ball. Sure, banks kept lurching from one scandal to the next – some things never changed – but it seemed there was always a genuinely ‘ethical’ alternative that would also serve your finances well. All this was aided and abetted by the 7 day switching service (introduced in 2013) which promised to move all my payments at minimal hassle in one week.
But the dream ended last year when TSB had its second IT cock-up in as many years. Being unable to manage my finances for the best part of a week on one occasion was bad enough. But twice? It was a deal breaker. I admitted at the time that the decision to leave wasn’t an easy one. It was still offering generous in-credit interest and had a really good app, though its lag in introducing card freezing was infuriating.
But ultimately the damage was done. I decided to get ruthless. I switched to HSBC in exchange for £150, though I made it clear at the time that the change was by no means permanent:
Trust me, HSBC has not got the gig for good. It’s very much on a trial period and if it doesn’t perform, I’m off.
HSBC and me: an imperfect match
At the time, I didn’t think too much about whether HSBC and me were a good fit. I have previously aired my unease about HSBC’s longstanding ethical failures and there’s a reason – well, many – why it comes consistently bottom of Ethical Consumer’s rankings of banks.
But this isn’t the Moral Money blog. There are plenty of brilliant websites out there that tackle that theme on a more consistent basis. More power to them. At heart, I am an ordinary young consumer like you, trying to juggle often conflicting needs and navigate a complex financial landscape where there are rarely angelic players we can count on. As I got older, I learned that managing my finances could not be a counsel of perfection, unless I was prepared to radically alter my lifestyle and set my face against most modern capitalism. Even if that was desirable, it’s far easier said than done.
But there are some things you just can’t ignore. Historic abuses should never be forgotten but one could argue that we should judge financial institutions on how they behave now, not what they did decades or hundreds of years ago. On that basis, I don’t know if we should be applauding those companies trying to make amends for historic slavery – or pointing out their reliance on so-called ‘forced labour’ in China right now.
Likewise, divestment from fossil fuels is being passionately demanded by younger consumers – but given how much modern finance is enmeshed with globalised supply chains, untangling the two will be a seriously complicated multi-decade project. What’s more, this process is at risk of being green-washed on an epic scale. Even if it’s not true that we have to compromise returns for ethics, it’s certainly the case that many companies and funds are already finding ingenious ways to seem more ethical than they really are. I’m prepared to wait and see who is charting this course with both integrity AND honesty – right now, it’s too early to say.
Hong Kong: a bridge too far
However, I couldn’t ignore a key strategic decision made by HSBC recently. China’s parliament recently passed a national security law to criminalise all dissent against its regime in Hong Kong. This breaks the fundamental agreement that was reached in 1997 when Britain handed back the territory to China on condition that it would be entirely autonomous – a principle known as “one country, two systems”.
This matters because it would take away the rights, freedom and transparent democracy that should be part and parcel of living in Hong Kong, as it is in the UK. It would almost certainly undermine free speech, the right to protest and local law.
Peter Wong, chief executive of HSBC’s Hong Kong subsdidiary, signed a petition supporting this law. HSBC then later issued a statement backing him up. This also matters because HSBC is headquartered in London, but has deep roots in Hong Kong.
It wouldn’t have been easy for the bank to stand up to China. But the extent to which they rolled over was depressing. It didn’t even try to make a case for defending the rights of Hong Kong citizens or use its powerful position as leverage on their behalf. I can’t articulate the reasons why this is reprehensible better than Joshua Wong, the face of Hong Kong’s protesters:
[My respond to HSBC’s top Asia exec has come out in support of the national security law]
1/ HSBC provides a vivid example demonstrating how China will use the national security law as new leverage for more political influence over foreign business community in this global city. pic.twitter.com/12U6InapQC
— Joshua Wong 黃之鋒 😷 (@joshuawongcf) June 3, 2020
I’ve been with HSBC for eight months, which isn’t a very long time, and I was prepared to overlook their chequered history. But I’ve come to the conclusion that the bank is hopelessly – perhaps fatally – intertwined with an oppressive regime that won’t backtrack on Hong Kong through corporate influence alone. HSBC would have to exit the region entirely and reshape their business in a highly costly and disruptive way. As the FT’s Patrick Jenkins recently pointed out:
“The purist conclusion would lead western businesses to exit markets that do not espouse liberal western values and moral standards — regardless of the financial impact. A more pragmatic approach, which could both protect profits and effect change, would be for companies and business leaders to use their considerable influence more effectively. This is the whole premise behind ESG: if an asset manager wants, for example, to discourage irresponsible oil exploration, it won’t necessarily simply sell its shareholding, but will engage robustly with the oil group’s management to push for a more rapid shift into renewable energy. That principle could be extended into other areas.
“Just don’t hold your breath waiting for financial sector bosses to strong-arm Xi Jinping into backtracking on Hong Kong or treating the Uighur any better. Those corporate licences to operate are simply worth too much.”
Before I talk about credible alternatives to HSBC, we need to talk about the main problems with switching right now.
Firstly, all the current account switching offers dried up after COVID struck. So you’re no longer getting a direct reward for moving your money.
Secondly, lots of young people won’t be in a position to switch their bank account in the middle of a pandemic: I get that. For many customers, the main priority is having an affordable overdraft and a bank that will treat you fairly over your debts. If you have a good relationship with your bank that’s necessary for managing your debts, don’t jeopardise it, however dodgy their geopolitics might be. A sliver of good news is that overdraft costs have overall gone DOWN as a result of this crisis, as I explain in this blog. So it may be that you don’t want to rock the boat…for now.
Thirdly, some people have pointed out on Twitter that regular bank account switching can harm your credit score, as lenders may see it as a sign of financial instability. Personally, I think this is ridiculous, unfair and possibly overblown in any event. Why should lenders punish people for exercising their consumer rights? My semi-regular switching is no more a sign of financial instability than my occasional penchant for buying overpriced beauty creams that sit on my bathroom shelf doing nothing.
The whole reason why the 7 day switching service was introduced was to make the banking sector more competitive and less complacent. It’s there to encourage people to switch to better options when things go sour. But if you have a fragile credit score, it may be a risk (albeit a small one) to bear in mind.
And my switching journey will be made a lot easier by the fact that I already have my new account lined up, ready to go. I have been using Starling as my daily spending account for a few years and while there have been some tiny glitches along the way, I have been mostly very impressed. The app is fantastic, offering some very nifty features notably missing from HSBC’s offering, and the customer service has always been stellar. This is a bank I know, like and trust.
I’m not advocating that you do the same. Starling works for me because I’ve been using it as a secondary account for some time. But if like me, you’ve been dabbling with a digital bank but haven’t fully committed, it might be time to go the whole hog and sign up to the fintech revolution, once and for all.
Here are some other options you might want to consider:
Monzo is one of the few banks rated well by Ethical Consumer that isn’t an explicitly ‘ethical’ bank or building society which can come with costs and downsides (more of that anon). It always does well in customer service surveys and has a banging app…
The Co-op Bank is now owned by a group of US hedge funds, which came to the rescue after its near-collapse in 2017. This is far from ideal but the Customer Union for Ethical Banking is now formally recognised by the bank’s management and making its presence felt. This bodes well for the union’s aims of ultimately returning the bank to cooperative ownership. The bank will unfortunately be cutting the maximum reward it pays each month – from £5.50 to £5 – in August. But the Everyday Rewards account could still be a good choice if you can pay in £800 a month, have 4 direct debits set up and do 60 transactions on your debit card each month (a challenge atm, I know!)
Nationwide is the UK’s largest building society and while not perfect, it has a markedly different ethos from most banks. It is run on behalf of its members, not shareholders, and invests back into the community with an explicit aim to be governed by “decency, fairness and dependability”. Its FlexDirect account pays 2 per cent interest on balances of up to £1500 in the first year, as long as you transfer in £1000 a month, but the rate does then drop to 0.25%.
Barclays Blue Rewards costs £4 a month and pays you £7 a month, so long as you set up two direct debits and pay in at least £800 a month. Santander pays 1 per cent interest on its 123 current account for balances of up to £20,000 but alas, this will also be cut in August to 0.6%. You can also earn up to £15 in cashback on paying your bills, though in all honesty this tends to only work out for those with bigger bills.