National Savings and Investments has launched a new issue of its green savings bonds, doubling the rate of return on offer.
The three-year fixed rate product, which first launched in October, paying a paltry rate of 0.65 per cent will now pay savers 1.3 per cent.
This represents a huge improvement given that the first issue would have meant savers effectively embracing a £3,600 penalty for choosing it over what was available elsewhere, if they maximised the limit allowed to go in.
Money held in NS&I’s green bonds will go towards green projects such as offshore wind.
The minimum investment in Green Savings Bonds is £100, with a maximum limit of £100,000 per person for each Issue.
With the best three-year deal on the market now paying 1.86 per cent, savers stashing away the maximum £100,000 will still be foregoing £1,733 of interest over three years by choosing NS&I’s deal over the best on the market.
There are also a further three accounts offering 1.85 per cent – all with Financial Services Compensation Scheme protection.
But despite better returns on offer elsewhere, NS&I’s account may well attract eco conscious savers.
The bonds will help finance the Government’s green spending projects designed to tackle climate change and help make the UK greener and more sustainable.
Green projects like zero-emissions buses, offshore wind and innovative low-carbon technologies will be eligible for funding, along with programmes to help Britain adapt to changing climate like improved flood defences.
James Blower, head of digital at Moneyfacts said: ‘The decision to increase the rates by NS&I is not a surprise.
‘Although no numbers have been released, it looks highly likely the decision to increase rate has nothing to do with market conditions but limited take up from savers.
‘While the improvement in rate is welcome, there is still better returns for savers elsewhere so this remains a product which should only be of interest to savers wishing to fund the green infrastructure products the bonds will support.’
Should savers sign up?
There are signs of fixed rate deals rising across the market following the Bank of England base rate rises in December and earlier this month.
There have been almost 300 rate rises recorded across the fixed rate market since 16 December, according to analysis by Savings Champion, compared to just 50 rate cuts during that time.
The base rate rises also appear to have sparked the top of fixed rate market into life again.
On Friday, Al Rayan Bank and Tandem Bank boosted rates on all of their fixed deals, propelling both banks to joint market leaders across various fixed rate categories.
| Type of account (min investment) | 0% tax | 20% tax | 40% tax | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| ONE YEAR | ||||||||||||
| Tandem Bank (£1,000+) | 1.45 | 1.16 | 0.87 | |||||||||
| Investec (£5,000) | 1.40 | 1.12 | 0.84 | |||||||||
| TWO YEARS | ||||||||||||
| Al Rayan Bank (£5,000+) (3) | 1.66 | 1.33 | 1.00 | |||||||||
| SmartSave Bank (£10,000+) | 1.66 | 1.33 | 1.00 | |||||||||
| Tandem Bank (£1,000+) | 1.65 | 1.32 | 0.99 | |||||||||
| THREE YEARS | ||||||||||||
| Al Rayan Bank (£5,000+) (3) | 1.86 | 1.49 | 1.12 | |||||||||
| Tandem Bank (£1,000+) | 1.85 | 1.48 | 1.11 | |||||||||
| QIB (UK) (£1,000+) (3) | 1.85 | 1.48 | 1.11 | |||||||||
| Secure Trust (£1.000+) | 1.85 | 1.48 | 1.11 | |||||||||
| FIVE YEARS | ||||||||||||
| Monument Bank (£25,000+) | 2.20 | 1.76 | 1.32 |
With further base rate rises expected and NS&I hoping to hit the Government’s £15billion target set for the bonds, savers may be wise to wait for NS&I and other providers to boost rates further.
Blower said: ‘While I expect there will be more interest at this level, I think NS&I will struggle to attract the £15billion the government announced it was intending to raise so we may well see further increases in the future if they still want to achieve that target.
‘As I don’t believe this increase will be enough to attract the £15billion targeted, I’d certainly recommend savers hold off investing for now and wait for what I expect to be a further increase.’
What about those who have already signed up?
Although news of the rate rise will come as welcome news to some savers, it will likely be frustrating for the few who have already invested their cash in the green bonds.
The Green Savings Bonds are a fixed-term investment and have to be held for the full three-year term.
This means that savers won’t be able to reinvest or withdraw their money from each Issue until it matures.
Savers who stashed money in NS&I’s first issue will unfortunately be stuck at the 0.65 per cent rate until the account matures.
Of course, these savers are also free to invest any spare cash they may have in the second Issue, but for some it might be too late.
‘Savers who have invested at 0.65 per cent are likely to feel aggrieved to see the rate double,’ said Blower.
‘While it has no obligation to do so, it would be a nice gesture if NS&I increased the rate on those to 1.3 per cent in line with what new savers will receive.’
For those who have recently signed up to the first issue of the bonds there may still be an escape route however.
Savers have a 30 day cooling off period and can cancel within 30 days of receiving confirmation of their Bond.
They can do this online, by phone or by writing to NS&I.
