Individual Savings Accounts (ISA)

First time investors should, unless circumstances are exceptional, consider investing in an ISA. The problem is, which type of ISA to have?

An ISA is a tax efficient wrapper that can be placed around a wide range of savings and investment schemes. With the many hundreds of ISA providers, there has never been a more important time to get independent financial advice.

The good news for ethical investors is that they are able to put their money into a wider range of investments than were available from PEPs and TESSAs. ISAs offer the opportunity to invest up to £7200 tax-free each year.

There are two main investment components to an ISA:

Cash:
Up to £3000 each year can be invested in a Bank or Building Society account, or National Savings. All interest earned is tax-free.

Stocks and Shares:
Up to £7200 can be invested in shares, Unit Trusts, Investment Trusts, OEICs, Corporate Bonds and Gilts.

Cash ISA

Holding a Cash ISA ensures a good gross rate of interest, often better than non-ISA accounts, and all of the interest is tax-free. Most Cash ISAs offer instant access, so you are not tying your money up by investing in a Cash ISA. Any money held on short-term deposits should be held in a Cash ISA, unless the focus is on maximising long-term capital growth. In this case, a Stocks and Shares ISA might be better.

Stocks and Shares ISA

Without doubt, this is the first contract to consider when making an equity (stock market) investment. The most important issue with this type of ISA is choosing the right one. Your ethical values must match those of the investment fund that you hold in your ISA. Remember, the majority of investment funds in the UK have no social, ethical or environmental criteria. Even amongst those that apply ethical criteria, the issues covered vary from fund to fund. An independent adviser, such as Ethical Investors, is best placed to help you find the ethical fund that matches your ethical views and risk profile.