Article contents
An ethical ISA is a great way to grow your money and make a positive impact on the world at the same time. Your money is invested with companies doing good in the world, rather than big, evil world-destroying corporations.
Want to make a positive difference to both the world and your wallet? Great, an ethical ISA is an excellent way to put your money where your morals are.
And you’re not alone, they’re becoming hugely popular, in fact, we’re huge fans of them here at Nuts About Money, and our own money is invested in ethical ISAs.
Introduced by the UK government in the 90s, ISAs (Individual Savings Accounts) are a great place to keep your cash, as you don’t pay any tax when your money grows. Kerching!
This means whether your money gets invested through a Stocks & Shares ISA or grows with interest in a Cash ISA, it’s all tax-free. (there’s more about these types of ISAs below, or check out our guide to ISAs).
Each tax year – that’s from 6th April to 5th April the following year – you can invest up to £20,000 in total into your ISAs.
You can also make sure the money you save or invest does good in the world (or, at the very least, doesn’t do any harm). This is where ethical ISAs come into play. You can choose an ISA that reflects your own values.
(Note: that doesn’t mean that ‘normal’ ISAs are necessarily unethical – they're just created with different considerations in mind. ethical investing and ethical saving means you’re more conscious about how your money gets used, and who you trust with your savings).
Ethical ISAs aren’t a separate type of ISA as such, but an option within the existing ISA schemes, which are:
What makes them ethical is who your money is stored with, and more importantly how your money is used and invested.
For instance, with a Cash ISA, you’ll be earning interest on your savings, it seems simple, but the ISA provider (that’s the company managing your ISA), will actually be using your savings to fund their other services such as loans to businesses – and these businesses may have a negative impact on the world. This happens with almost every bank in the UK.
So, with an ethical Cash ISA, your ISA provider would only be lending your money out to businesses that have a positive impact on the world – such as green energy companies or sustainable farming. Pretty great right?
However, due to very low interest rates, Cash ISAs won’t make your savings grow much, and unfortunately there’s not many ethical choices out there at the moment.
The real impact you can have with your savings is with Stocks & Shares ISAs. They give you the most flexibility (and the most impact) in terms of your ethical choices. Plus, your savings will grow considerably more!
Stocks & Shares ISAs are where your ISA provider will partner with an investment fund, who are experts that invest your money in successful and growing businesses with the aim of growing your money safely over time – and your money could grow a lot over 5-10 years or more – much more than in any other type of savings account. A good rule of thumb is to expect an average increase of 8% per year.
But what about ethical Stocks and Shares ISAs? Hang on, we’ll explain.
Ethical Stocks and Shares ISAs allow you to invest your money without having to compromise on your morals – you can still have a positive impact in the world. The ISA provider themselves, or in collaboration with an investment fund (experts), will offer an ethical investment option for you to choose – it’s all simple for you, which will follow these 3 criteria points:
Often it’s not about what you invest in, but what you don’t. If you don’t want to promote gambling, for example, casinos will be a no-no. Here are some services and products that an ethical ISA might exclude:
This may mean they make important contributions in areas such as healthcare, education, or the environment.
The so-called “ESG framework” helps investors consider the ethical criteria that are most important to them. It stands for:
Environmental: combating pollution, climate change, water usage, and deforestation.
Social: great treatment of employees, good health and safety, diversity, and helping local communities.
Governance: corruption, inequality and bribery—and steps that are taken to mitigate this.
You get to invest your money in businesses that won’t harm future generations, such as using green energy, or using water and land sustainably.
Ethical Stocks & Shares ISAs have just as much potential to perform well as regular Stocks & Shares ISAs do. In fact, many ethical investments are actually outperforming traditional funds. Put simply: you don’t have to sacrifice the growth of your money to make a positive impact on the world.
Stocks and Shares are not the only way to invest your money ethically. Here’s how you can save and grow your money with other types of ISAs – while keeping your principles in mind.
A good example is the Ecology building society, who provide mortgages to eco-friendly homes, and offer a Cash ISA for you to invest in.
Although ethical ISAs are the future, they’re still fairly hard to find! And between all the ethical ISA types, we’d recommend you choose to invest in an ethical Stocks & Shares ISA rather than a Cash ISA – your money could grow a lot more over time.
To make it easy for you, we’ve done the hard work and research to find the best ethical Stocks & Shares ISAs for you, and here they are…
The best ethical ISA is Moneyfarm. Learn more on their website.
Moneyfarm are leading the way with ethical investing. Their ‘socially responsible’ plan focuses on not just investments with high environmental, social and governance (ESG) standards, but some of the most forward-thinking and impactful companies in the world.
All the investments are 100% compliant with the United Nations Global Compact, and 100% compliant with labour laws.
The investments are managed by experts, with one of the best track records for making money over time. In fact, returning 5% more than a non-ethical investment option in recent years.
It's low cost and with awesome customer service. Best of all, you'll get a financial advisor to chat to whenever you like, all included.
Accounts offered:
Get your first 6 months with Nutmeg fee-free
Nutmeg is a good digital wealth manager – their experts will handle everything for you. However, the investment track record isn’t the best, and they’re one of the most expensive. Plus, they’re the furthest you’ll get from socially responsible investing. There’s better options out there.
The best ethical ISA is Moneyfarm. Learn more on their website.
One great feature of ISAs is that you can move your money to another provider at any time you want to invest or save your money elsewhere. So if you do see a better ISA deal or you spot another ISA provider that’s more aligned with your morals, you can make the switch.
All you need to do is register with the new ISA provider, and they’ll handle everything for you. It’s called an ISA transfer. Don’t withdraw your money and put it into a new ISA, because this will use up part of your £20,000 ISA contribution allowance for that tax year.
Let’s save the planet together. There’s no bigger impact you can make in the world than deciding what you do with your money – whether that’s what items you’re buying or where your savings are being invested, and who with. Money really does talk as they say.
Better still, the track record of socially responsible investing is actually higher than non-socially responsible investing, so not only are you saving the planet, but you’ll be growing your savings even more. It’s a win-win.
If you're new to investing, we've got a guide for you: investing for beginners (UK).
The best ethical ISA is Moneyfarm. Learn more on their website.
The best ethical ISA is Moneyfarm. Learn more on their website.
This article was written by the team at Nuts About Money, and fact-checked by 2 independent reviewers. You’re in safe hands.
The best ethical ISA is Moneyfarm. Learn more on their website.