UK savers will have the opportunity to buy bonds which support ‘green’ projects while saving money, thanks to a new NS&I product.
In today’s Budget, Chancellor Rishi Sunak revealed that a new green savings bond will be launched in summer 2021. The product is part of the government’s pledge to put green investment at the centre of the UK’s post-pandemic economic recovery.
Thresholds on adult Isas and junior Isas will remain unchanged at £20,000 and £9,000 respectively for the tax year 2021-22, but the Lifetime Isa penalty was reinstated. The charge on unauthorised withdrawals from Lifetime Isas was reduced to 20% at the start of the pandemic, but will be returning to 25% as of 6 April 2021.
Here, we explain what we know so far about the new NS&I savings product and what the rest of today’s announcements means for UK savers. For a full round-up of the Chancellor’s announcements, visit our Budget 2021 live feed.
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‘Green’ savings bond
The Treasury has announced the launch of the world’s first ‘green’ savings bond.
Offered through NS&I, this bond will allow UK savers to help fund the country’s green recovery after the pandemic.
The money raised will be earmarked for projects on renewable energy and ‘clean’ transportation that will help the government meet its target of cutting greenhouse gas emissions to net zero by 2050.
We don’t yet know how much the government is hoping to raise from the bonds or what savers will get in return for investing. But we do know that the product’s framework will be closely linked to the government’s green bond framework.
Proceeds from the savings won’t contribute towards NS&I’s net financing remit, according to the Budget red book, published this afternoon.
Listen: our experts discuss the Budget on the Which? Money Podcast.
New net financing targets for NS&I
NS&I will have a net financing target of £6bn for 2021-22.
Because it’s backed by the Treasury, every financial year NS&I receives a net financing target from the government. This represents the amount of extra savings the organisation is targeted to bring in.
Last year, its target was increased from £6bn to £35bn in the wake of the coronavirus pandemic. A higher financing target means NS&I can give savers more competitive interest rates on its products.
However, it fell well below this target and is forecast to bring in £20bn for 2020-21, according to the Budget.
- Find out more: what is NS&I?
Adult Isa allowance
The allowance for adult Isas for 2021-22 remains unchanged at £20,000.
The threshold hasn’t been updated since 2017, when it leapt up by £4,760. So far, the allowance has tended not to change except for big leaps like this every few years.
Bear in mind your allowance doesn’t carry over into the next tax year.
- Find out more: compare Isas with Which? Money Compare
Adult Isa allowance over time
Find out more: are Isas still worthwhile?
Junior Isa allowance
Junior Isas are tax-free savings accounts for under-18s. They can be opened by parents or guardians of children born on or after 3 January 2011, or before 31 August 2002.
For 2021-22, the junior Isa allowance remains unchanged at £9,000.
Last year, the junior Isa allowance saw an unexpected leap of £4,362, having previously only increased by £108 in line with CPI inflation.
- Find out more: the best junior cash Isas
How the junior Isa allowance has changed
- Find out more: junior Isa rules and allowances
The lifetime Isa is a tax-free savings or investments account that allows adults aged 18-39 at the time of opening to save up to £4,000 a year. For every £4 you save, the government will add £1 (worth up to £1,000 every tax year until you turn 50 years old).
It’s designed to help savers either buy their first property or save for retirement.
Unless you’re buying your first property, withdrawing any of the money before you turn 60 incurs a 25% penalty.
Between 6 March 2020 and 5 April 2021, the government temporarily reduced the lifetime Isa withdrawal charge to 20% down from 25%. This was to help those who needed to access their funds early after their incomes were affected by the pandemic.
- Find out more: what is a lifetime Isa?
Personal savings allowance
The personal savings allowance was introduced in April 2016. It allows you to earn up to £1,000 in interest tax-free if you’re a basic-rate (20%) taxpayer, or £500 if you’re a higher-rate (40%) taxpayer.
Additional-rate taxpayers – people who earn over £150,000 a year – don’t receive a personal savings allowance, so they’ll need to pay tax on all their savings.
No changes have been made to the personal savings allowance since it was first introduced.
Here are a few examples of how the personal savings allowance works in practice:
- You earn £20,000 a year and get £250 in interest: you won’t pay any tax because it’s less than your £1,000 allowance.
- You earn £20,000 a year and get £1,500 in interest: you won’t pay tax on the first £1,000 of interest but will pay basic-rate tax (20%) on the £500 above this.
- You earn £51,000 a year and get £250 in account interest: you won’t pay any tax because it’s less than your £500 allowance.
- You earn £51,000 a year and get £1,100 in account interest: you won’t pay tax on the first £500, but will pay higher-rate tax (40%) on the £600 above this.
If you want to find a new home for your nest egg, compare savings accounts with Which? Money Compare.