ISAs: how your savings could be harming the planet… or helping it
The bank holiday weekend is your last chance to pay into your 2020-21 Individual Savings Account (ISA) before the end of tax year deadline on April 5th. ISAs are a brilliant way to protect your savings – but if they’re not managed right, they can also be damaging to the planet. Standard ISA products often use your money to support dangerous and destructive industries, from climate-wrecking fossil fuels, to military arms and the global tobacco trade.
Enter the ethical ISA.
Ethical or sustainable ISA products keep your money away from the world’s ills and instead let you support businesses with a truly positive impact. This year is looking to be the year of the ethical ISA, with a younger generation of investors looking to save the money they’ve not spent during lockdown. Research from Triodos Bank UK shows that 86% of 18-34 year olds are looking to switch to or open an ethical ISA account this year.
Here we’ve compiled all you need to know about ISAs – what they are, how they work and their impact on the planet.
What is an ISA?
An ISA is a tax-free wrapper – in other words, a legal way to avoid paying tax. Every year, up to £20,000 can go into an ISA account, and any returns are tax free.
There are four main types of ISA:
- Cash ISAs – Cash savings accounts where you won’t be taxed on any interest your savings accrue. A benefit of cash ISAs is that you can withdraw your money easily.
- Stocks & Shares ISAs – ISAs invested in either funds or the stock market directly. You won’t be taxed on any returns or dividends you make, and you won’t be taxed if you make gains when you sell the shares.
- Innovative Finance ISAs (IFISAs) – The practice of lending money to businesses. You won’t be taxed on the interest you get when they pay you back.
- Lifetime ISAs – To save for your first home or retirement. Other than for those two events you cannot withdraw the money. As well as tax-free interest, the government also adds in 25% of the amount that you do.
You can also pay into Junior ISAs for your child. These have a cap of £9,000 a year and can be either cash savings or investments in stocks & shares. Your child can access the money on their 18th birthday.
What’s the catch?
With very few exceptions, when money goes into an account it doesn’t just sit there as money; rather, the bank that looks after your money will lend it or invest it. However, you probably won’t find out who they’re lending it to or what they’re investing it in.
That means if you have a cash ISA, your money could be being used to prop up businesses you wouldn’t dream of supporting. Likewise, your Stocks & Shares ISA could be investing your money in a fund, to finance anything from drilling oil to manufacturing weapons. This money is helping to keep these dangerous industries afloat.
A recent report from the Rainforest Action Network (RAN) showed that in the 5 years since the Paris Agreement, the world’s 60 biggest banks have poured $3.8trillion into fossil fuels. If you don’t use an ethical ISA provider, some of that money could be from your savings.
How can my ISA benefit people and planet?
While most providers support fossil fuels, arms, tobacco and other destructive industries, ethical and sustainable providers such as Triodos Bank UK are committed to keeping your savings away from them. They also commit to using your money to support businesses driving positive impact – from sustainable energy companies or local community-led businesses. Triodos even goes so far as to show you exactly what your money is funding, on their website.
For Stocks & Shares ISAs, there are also ethical alternatives. You can either compile your own investment portfolio through ethical investment platforms, like the one Triodos provides. Or you can trust an ethical wealth manager like Rathbones Greenbank to do it for you – an ethical wealth manager will choose the investments on your behalf and aim to deliver returns while also making sure the investments have a positive impact on society. Unlike with cash ISAs, Stocks & Shares ISAs allow you to own the shares yourself and take on the benefits and risks of those investments.
Switching your savings to an ethical alternative is one of the easiest ways to have a positive impact on the world around you. Both by preventing your money from supporting damaging industries and also by helping businesses that have positive impact.
Whether you are hurrying this weekend to meet this financial year’s deadline, or preparing yourself to start saving next year, make sure your money backs up your morals. Open, or switch to, an ethical ISA.
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