Many of us tuck money away for our children and grandchildren in the hope it will help give them a brighter future.
Whether it is saving money to help pay for further education or to help them get on the property ladder, we hope our efforts will make their lives better.
But by investing the money ethically, you could also help ensure it is shaping the world into a better place for them.
Happy days: Up to £9,000 can be put into a Junior Isa every tax year and you can pay into one cash and one stocks and shares version
Junior Isas are the perfect vehicle for saving for a child’s future. As with adult Isas, money invested or saved inside an Isa is shielded from tax.
Up to £9,000 can be put into a Junior Isa every tax year and you can pay into one cash and one stocks and shares version, while 16 and 17-year-olds can hold a Junior and an adult cash Isa at the same time.
There are ethical options for both cash and stocks and shares Junior Isas.
Pros and cons of cash… or stocks and shares
As with adult Isas, you stand a greater chance of growing money through investment returns in a stocks and shares Isa than via interest earned on a cash Isa.
But investing comes with more risk, so you need to be comfortable with that.
It can pay to take an especially high degree of risk with a child’s Isa – especially if they are still very young.
That is because Junior Isas cannot be accessed until the child turns 18, so there is a long time horizon to ride out the stock market highs and lows.
If you think the child will want to access and spend their money as soon as they’re able, you may want to consider moving their money from higher to lower risk investments in the years leading up to their 18th birthday.
But if they are likely to keep it untouched for some years after that, you could keep it invested in higher risk investments.
Ethical aims: Sustainability-focused funds may invest in companies that build green infrastructure, reduce pollution or create better health outcomes
The benefits of Junior Isa ethical investing
Becky O’Connor, head of pensions and savings at wealth platform Interactive Investor, believes putting ethical investments into a Junior Isa is a no-brainer.
‘Lower carbon emissions, less pollution, better health outcomes and more prosperity for all are among the goals of some ethical and sustainability-focused funds,’ she says. ‘These are the things your children would presumably feel pleased you invested in on their behalf.’
The long time frame that Junior Isas afford makes them well suited to ethical investment, which can involve building green infrastructure and other big structural changes to the global economy that can take years to deliver profits.
O’Connor adds this approach can help introduce older children to the world of investing, saying: ‘Junior Isas can make great talking points for older kids who are interested in business and economics as well as environmental and social causes.
‘There’s no better way to learn about profits and principles than to have a stake in the future.’
How to start saving into a Junior Isa
You can open a stocks and shares Junior Isa with most investment platforms – the likes of AJ Bell, Fidelity, Hargreaves Lansdown and Interactive Investor. If you wish, you can then search through the available funds for ones that are marketed as ethical.
Just because something is described as ‘ethical’ doesn’t mean that it fits your criteria. There is very little regulation of terms such as ‘ethical’, ‘green’ or ‘sustainable’.
For example, some ethical funds invest in oil and tobacco companies. The best way to ensure a fund matches your views is to read its prospectus and study its holdings.
Sustainable funds liked by the experts
Interactive Investor’s O’Connor recommends Impax Environmental Markets, a stock market-listed investment trust with a focus on the transition to clean energy.
It has a global reach. Among its top ten holdings is American Water Works, committed to being a trusted water and wastewater services provider, and Trimble, a US specialist in helping agricultural businesses produce food in an environmentally friendly way via automation.
The trust’s long term-investment record is excellent, perfect for a Junior Isa where money can remain invested for ten years or longer.
Over the past ten years, the trust has generated a return of 367 per cent, while the FTSE All-Share Index delivered a return of 87 per cent. The annual trust charges total 0.95 per cent.
O’Connor also likes Montanaro Better World, which invests in firms with a positive impact on the world.
Launched in spring 2018, the fund has generated a return of 54 per cent, while the FTSE All-Share Index has increased by 17 per cent.
Growing up: Interactive Investor’s Becky O’Connor suggests investing in some smaller companies which can ‘grow with your kids’
O’Connor says: ‘It focuses on smaller companies that can grow with your kids,’ she says. The fund specialises in firms involved in environmental protection, developing the green economy, healthcare, innovative technology, nutrition and well-being.
‘Among its big holdings is US company Brucker which develops solutions that improve the quality of human life. The fund’s annual charges add up to 0.85 per cent.
Dominic Rowles, at wealth platform Hargreaves Lansdown, is a fan of Aegon Ethical Equity. The fund steers clear of tobacco and alcohol producers, munitions manufacturers and companies that use animal testing.
Top holdings include UK listed Diploma, a provider of services to the healthcare and environmental industries.
Over the past ten years, it has outperformed the FTSE All-Share Index, producing a return of 98 per cent. Annual charges total 0.77 per cent.
These top Junior Isas beat the rates available to adults
Children can hold both a cash and an investment Junior Isa.
Although no cash Junior Isa currently pays an interest rate that beats inflation, the best deals are more favourable than those offered on adult cash Isas.
The best rate available is 2.4 per cent from The Family Building Society, offered on balances above £3,000.
Balances from £1 to £1,000 earn 1.65 per cent and between £1,000 to £3,000, 2.15 per cent. You can only open the account in the branch in Epsom, Surrey, or by post. It accepts transfers from all Junior Isas, but not Child Trust Funds (the precursor to Junior Isas).
For the best interest rate with online access, Coventry Building Society pays 2.35 per cent.
It accepts transfers from existing Junior Isas and Child Trust Funds. You can open the account online, but must then manage it in branch, by post or over the phone.
Tesco Bank pays 2.25 per cent on its Junior cash Isa and you can both open and manage the account online. It accepts transfers from cash Junior Isas and Child Trust Funds, but not stocks and shares Junior Isas.
At present, no bank offers an ethical cash Junior Isa.
Triodos Bank has in the past, but it has closed its Junior Isa to new applicants.
However, some credit unions do. For example Clockwise Credit Union offers a Junior Isa paying one per cent to children living in Leicestershire, Northamptonshire and Warwickshire.
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