3 reasons you should know where your money goes

Written by Rebecca O'Connor on 2nd May 2017

This blog post is sponsored by Downing Crowd

While we might not be in danger of a political revolution in a month’s time, there are ways you can vote for the world you want that don’t involve a ballot paper.

Why does where you invest or deposit cash count as voting?

Money talks. If you are cynical, you might say it is the only thing that does – you might even say it is a much more effective tool for change than politics.

Most of the time, we put our money into things that are going to serve us in the way we want, ie. by offering us the best interest rates or the cheapest premiums. That’s totally rational.

But usually, we don’t also think about the underlying investment or companies that are delivering that product or return to us. What do they invest our cash in? Is it an activity we think is good or bad for us? Is it the type of business we’d want our children to work for?

If we don’t dive under this particular bonnet, the chances are our cash is going all over the place, into some companies that might do good, but also – and more likely – many that are profiting from some pretty destructive things, like fracking in Lancashire, coal mining in India, and tobacco production in the US.

In fact, a huge wodge of your cash simply fuels financial institutions lending to other financial institutions, inflating an ever-expanding balloon of debt, supported only by our ability to repay interest.

A wave of curiosity about what money does is one reason Triodos Bank, a sustainable bank that only lends to businesses and charities that have a positive impact, has just launched its first ever UK current account.

It’s also helping to fuel the growth in peer-to-peer lending and crowdfunding, where investors put their money STRAIGHT INTO businesses they like the look of. On UK platforms, these are usually medium-sized businesses based in the UK.

If you have some spare money that you’d like to consider investing rather than saving, one of the easiest ways to get into P2P lending is through the new “Innovative Finance ISA”, which allows you to lend to businesses through P2P platforms, tax-free, for returns that come in at between 5 and 7 per cent, roughly. A £50 minimum investment is standard and you can set up regular monthly contributions with most platforms, just like savings accounts (although they are more risky than savings accounts, which are deposits, as the money is being put to use by a business, which might fail. Platforms do conduct risk assessments on businesses first and you can check the Offer Documents for risk details.)

Some of the platforms that now offer an IFISA include Abundance Investment, Crowd2Fund, Crowd Stacker, Downing Crowd, Landbay and The Lending Works. Have a browse and see what businesses you like the look of – both for returns and, if you would like your money to support the real economy, the business behind the interest rate on offer.

Downing Crowd has a range of renewable energy, pub and leisure bonds coming soon, as well as an opportunity to lend to a data centre in Birmingham. Interest rates range from 3.25 per cent to 7.5 per cent and the terms (ie. how long til you get your money back) are between 8 and 18 months.

Here are three reasons why you should find out from your bank where it invests your cash:

  1. Only about 3 per cent of bank loans go to the “real” economy, ie. the businesses that contribute to productivity, providing employment and actual goods and services that might enhance our lives. The rest, according to John Kay, the economist, is lending to lending institutions to create more loans. Much of this simply ends up creating asset bubbles, finding its way into property in the form of mortgages, and continuing to push up house prices. If we stop handing our money over to banks, they won’t be able to lend as much to other banks and on property. In other words, we can help to break our collective debt cycle and re-discover true value.
  2. If you invest in an ISA or pension that has been chosen for you based on your risk profile, it might be invested in an index tracker. These funds invest in a range of companies and are designed to track the performance of an “index” of shares, such as the FTSE 100. They are low cost and therefore popular, however they give you no control over the companies you invest in, unlike thematic funds, such as sustainability funds. Index trackers are “passive” meaning the fund managers do not choose to have a say in how the companies they invest in on behalf of shareholders are run and they do not change the holdings frequently.
  3. Banks are at best morally neutral and worst, morally negative. They have shareholders to make a profit for and therefore will invest in anything they think will deliver a profit, regardless of what that activity is. For example, Barclays owns a stake in Third Energy, a Yorkshire-based fracking firm, while HSBC, which owns First Direct and M&S Bank, invests in coal mining in Australia and India. You can research the types of deals your bank is involved in on the fantastic BankTrack website.

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