What is an Ethical Junior ISA?
An Ethical Junior ISA (JISA) is a tax-efficient savings account for children that invests with an ethical reasonability in mind.
Ethical Junior ISAs are a type of Stocks and Shares JISA, meaning that they invest in the stock market via funds, shares and other investment vehicles.
An Ethical JISA’s underlying investments can either be self-selected or they can be picked for you by a portfolio manager at a higher cost.
This guide will explain everything you need to know about Ethical JISAs. It will also compare the most important features and help you find the best Ethical Stocks and Shares Junior ISA for you.
What are the different types of Ethical Junior ISAs?
The main two types of Ethical JISAs that you can choose between are self-invested JISAs and ready-made Ethical JISAs.
Self-invested Ethical Junior ISAs
Self-invested, or self-select JISAs are facilitated through investment platforms where you pick your own underlying investments to hold in a Junior ISA.
You can choose from a huge range of investments within a self-invested JISA, from funds and shares to ETFs and Bonds. To ensure it is ethical, you need to make sure the companies and funds you purchase are ethical funds – more on this later.
Ready-made Ethical Junior ISAs
A ready-made Ethical JISA portfolio will have the underlying investments chosen by an investment professional. They will make sure your JISA invests in ethical funds and companies and manage and balance the portfolio on a day-to-day basis.
You will usually choose a risk profile or complete a risk questionnaire to determine the best portfolio for you, as most providers categorise their ethical portfolios by exposure to risk.
Because of the expertise and ongoing fund management required to run of a ready-made portfolio, you have to pay more in charges for this kind of Ethical JISA.
What is an Ethical investment?
The definition of an Ethical investment is somewhat down to your own preferences. If you are creating your own portfolio, it could just be shares of a company that operates in a sustainable and environmentally friendly sector, like green energy.
However, managed ethical funds are more specific, tailored investments managed towards a fixed ethical criterion.
Managed funds, such as unit trusts and OEICs, work by pooling investors’ money together and then spreading it across multiple different companies to diversify the portfolio.
An ethical managed fund will tend to avoid certain industries, such as:
- Fur trade
- Alcohol Production
- Tobacco Production
In addition, ethical funds will often define themselves as ESG funds that aim to adhere to certain Environmental, Social and Governance standards:
- Fighting climate change
- Sustainable practices
- Reducing waste and energy usage
- Fighting for human rights, including race and gender equality
- Protecting their customers
- Treating employees and suppliers fairly
- Paying fair and sustainable salaries and bonuses to executives
- Transparent and open financial reporting
- Working ahead of regulatory changes
Why invest in an Ethical Junior Stocks and Shares ISA?
Putting your child’s ethical savings and investments in a JISA wrapper is the most tax-efficient way to save for their future. The two main investment taxes will not apply to their savings:
- Capital Gains Tax (CGT) - the tax on the growth of their underlying ethical investments
- Dividend Tax – the tax on the dividends that most ethical investments pay
As your money invests in the stock market, the potential for long term returns is far greater than those in a Junior Cash ISA.
Although you may experience periods of volatility, over the long term your investments can rise significantly in value. Your child’s savings are generally likely to be held for longer periods compared to other savings accounts, so this compliments stock market investments.
How to pick the best Ethical Junior Stocks and Shares ISA?
In order to find the best Ethical JISA provider for you, there are several key factors to keep in mind:
- Do you want a self-select or ready-made portfolio?
- What are the Annual Management Charges?
- Are there any ad hoc charges such as dealing fees or account closure fees?
- How good are the provider’s customer service ratings?
- What investment risk level do you need? (if choosing a ready-made portfolio)
- What investment research do they offer? (if picking the ethical investments yourself)
How do I open an Ethical Junior Stocks and Shares ISA?
When you have chosen your JISA provider, you need to open the account for your child with a debit card contribution or Direct Debit instruction. You can do this online, over the phone or by post.
When you have contributed your funds, you either purchase your ready-made ethical portfolio or start selecting your own ethical investments to buy within your Stocks and Shares JISA.