NS&I has revealed its Green Savings Bonds, due to launch later this year, will be three-year fixed-term products.
Up until now, all we knew about the bonds was that money raised will be used to fund environmentally-friendly projects and help to meet the UK’s target to cut greenhouse gas emissions to net-zero by 2050.
The accounts were first mentioned by Chancellor Rishi Sunak in March as part of his Budget speech, where he described them as being a ‘world first’ giving people in the UK an opportunity to tackle climate change in a collective effort.
Here, Which? takes a closer look at what has been revealed about the new bonds, and whether they’re a good deal for savers.
What will NS&I’s Green Savings Bonds offer?
Green Savings Bonds will be three-year fixed-rate products.
This means the rate of interest will remain the same for the duration of the term, but you won’t be able to access your cash before the three years is up. There is, however, an initial 30-day cooling-off period when you can get your money back if you change your mind.
The bonds are only available online via NS&I’s website, for those aged 16 or over with a UK bank account that’s able to receive Bacs payments. You can deposit £100 to £100,000 individually or jointly.
The fixed rate of interest will be earned daily and added once a year. But, crucially, the interest won’t be paid until the bond matures – so, for tax purposes, you’ll receive three years of interest in one go. This will count towards your personal savings allowance, and may trigger a tax bill if you exceed it.
We recently wrote about the implications of savings interest being paid in this way with NS&I’s Guaranteed Growth Bonds.
How much interest will you be able to earn?
As for how much interest the bonds will offer – we still don’t know.
NS&I generally has to toe a line where its interest rates are reflective of the rest of the savings market, while being able to generate the funding target set by the government.
But the Green Savings Bonds could be more competitive than NS&I’s other savings products as they will not form part of its usual net financing target – which, for 2021-22 is fairly low at £6bn.
Instead, they will be used to provide funding for huge projects such as making the transport system greener – so rates will have to be attractive in order to encourage savers to part with their cash.
Right now the best three-year fixed-rate bond is offering 1.26% AER.
Find out more: what is National Savings & Investments?
How ‘green’ will the bonds be?
Money saved with NS&I’s Green Savings Bonds will be used to fund six types of ‘green’ projects. These include making transport cleaner, switching to renewable energy, improving energy efficiency, pollution prevention and control, protecting living and natural resources, and adapting to climate change.
The government must issue transparent annual reports on the environmental and social impacts of these projects.
According to an assessment from Carbon Trust, which looked at the government’s green financing programme – including Green Savings Bonds – the plans ‘align sensibly’ with the Climate Change Committee’s recommended climate targets for the UK.
- Find out more: how to find the best savings account
How safe will my money be?
Savings held with NS&I are not covered by the Financial Services Compensation Scheme (FSCS). With any other savings provider, this would be a red flag, but in this case you shouldn’t worry, as all money held with NS&I is 100% backed by the Treasury.
This means your cash is fully covered – and there’s no upper limit to how much you can save.
By contrast, the FSCS covers up to £85,000 per person, per financial institution. So, if you have money saved with providers outside of NS&I, you should make sure your cash is split up to prevent exceeding the £85,000 compensation limit, should any of the banks go bust.
- Find out more: what is the FSCS?
Are there other ‘green’ savings available?
With climate change an increasingly important issue for many of us, more providers have been taking steps to offer ‘greener’ savings options.
Earlier this year Gatehouse Bank launched a competitive range of ‘green’ fixed-term savings and cash Isa accounts, where it promised to plant a tree for every account opened.
Other providers offering green savings products include Ecology Building Society, Tandem Bank and Triodos Bank.