The Co-operative Bank has reduced the APR on its ethical credit card by 1% in the hopes of tempting more customers, but it is still a poor deal for everyone but the bank.
The Think credit card is aimed at those individuals interested in helping preserve the rainforest, with Co-op making a small donation to the Cool Earth charity when you spend.
This sounds noble enough, but the uncompetitive rates on offer mean you could donate twice as much to charity - at half the cost to you - simply by opting for a more competitive credit card instead.
Here’s how it works
Think comes with a fairly low 12.9% typical APR but has no 0% introductory offers on either new purchases or balance transfers. Instead, you get a reduced rate of 7% for six months on transfers and purchases made at a few select ethical stores (most notably Ikea).
The Co-op also promises to purchase and preserve half an acre of rainforest when you make your first purchase, and donates 25p for every subsequent £100 spent.
So let’s assume you spend £2,000 and pay it off over the course of a year. Half of this is spent at one of the stores where you are charged a reduced rate of interest (7%) for six months, and the other half elsewhere (12.9%).
By the time you clear your debt you would have paid £118.48 in interest. From an ethical perspective, the Co-op would have donated £5 to charity, plus half an acre of rainforest was preserved.
The smarter route
Now let’s assume you opened an HSBC credit card instead, which comes with a 15.9% APR but offers 12 months interest free on new purchases.
If you spend £2,000 on this card and pay it off over one year you will incur no additional cost whatsoever, but of course the aim is to help the environment as well.
According to the charity Rainforest Concern, it costs £25 to purchase and preserve half an acre of rainforest.
Everyone’s a winner
So spend £50 for a whole acre (remember we want to donate twice as much as we would have with Think) and send a further £10 the way of a charity of your choice.
That brings your total additional costs (excluding the original £2,000) to £60, which is basically half the £118.48 you would have incurred with Think.
So apply for this card here, purchase an acre of rainforest here and donate to charity here. There you go: you win, the environment wins, and everybody’s happy.
Think is stingy with donations
Of course some people might be able to use a credit card and pay it off immediately. This is definitely the smartest way to use an ethical card, as it allows you to avoid interest but still ensure money is donated to charity.
But even here Think is a bad deal. As we showed above, spend £2,000 on it and just £5 goes to a good cause.
Other ethical cards are far more generous. American Express Red, for example, donates 1% of spend to charity – four times more than Think. Spend £2,000 on this card and a far more impressive £20 goes to a good cause.
Fails on both fronts
The Co-op is marketing Think as a card that isn't just a competitive deal for customers, or for the charity it serves.
As David Fawell, head of unsecured lending at the bank, says: “We firmly believe that customers should not have to choose between price and ethics.”
And in a way they have succeeded: Customers won’t have to choose between the two, because the card delivers on neither.
