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22 Oct 2021

NS&I Green Savings Bonds launch today - how much can you earn?

Deposits will be used to fund environmentally-friendly projects

NS&I's new Green Savings Bonds will be available from today (22 October), paying a fixed rate of 0.65% AER over a three-year term.

The accounts were first announced by Chancellor Rishi Sunak in March 2021, as part of his Budget speech. The money raised through the bonds will be used to fund environmentally-friendly projects, and help the UK to reach its net-zero greenhouse gas emissions target by 2050.

The Chancellor described the savings product as a 'world first', as it aims to give savers an opportunity to tackle climate change as part of a collective effort.

Here, Which? reveals what the new NS&I accounts offer and whether they're a good deal for savers.

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What do the NS&I Green Bonds offer?

NS&I's Green Bonds are three-year fixed-rate savings products - this means the advertised rate of 0.65% AER is fixed for the full three-year term, but you'll have to commit to locking your cash away for that time.

There is a 30-day cooling-off period when you first deposit your cash into the account, where you're able to withdraw it - after that, you'll need to wait for the account to mature.

The account requires a minimum initial deposit of £100, and you can save a maximum of £100,000 per person. The accounts can be held individually or jointly.

As NS&I is backed by the Treasury, 100% of your cash is safe; there's not the usual limit of £85,000 like there is with providers covered by the Financial Services Compensation Scheme (FSCS).

The bonds are available to savers aged 16 or over and can be purchased and managed online (though those without access to the internet can call NS&I on 08085 007 007 to open an account in exceptional circumstances). Customers must have a UK bank account that's capable of receiving BACS payments.

NS&I says the bonds will be on sale for at least three months.

How do NS&I Green Bonds compare?

For savers who are primarily interested in getting the most competitive interest rate, NS&I Green Bonds may fall short.

The current top rate for a three-year fixed-term savings account is 1.81% AER; three times higher than the 0.65% AER you can earn with the Green Bonds.

In fact, of the 60 three-year fixed-term savings accounts currently on the market, 80% offer a higher rate than the NS&I Green Bonds.

How sustainable are NS&I's Green Bonds?

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 says it will publish details about how the money is being spent, and what the environmental benefits are.

Due to the nature of how NS&I works, it's difficult to compare its 'green' credentials to other savings providers.

Recent Which? research looked into the publicly available sustainability information from a range of savings providers, to find out how they fared on topics such as carbon management and reporting, ethical lending policies and transparency.

Once further details are released about how deposits from NS&I's Green Bonds are being used, we may be able to see how they compare on sustainability.

Should I save with NS&I's Green Bonds?

NS&I's savings accounts are usually hugely popular with UK savers; it has a longstanding, recognisable brand, and the fact that your money is 100% backed by the Treasury can give valuable peace of mind.

As to whether NS&I's Green Bonds suit you may come down to your own values. If you want to make choices for your savings that are in-line with a drive to be more environmentally friendly, then these accounts could be a way to do that.

If you're more focused on getting the best returns, then perhaps not.

You may also want to consider the fact that you can only open and manage Green Bonds online (unless there are exceptional circumstances); so if you're not comfortable banking in that way, these may also not be the best choice for you.

Possible tax implications

It's important to note the way NS&I will pay the interest on its Green Bonds.

While interest is earned daily and added once a year on the bond's anniversary, it's only actually paid when the bond matures after three years.

For tax purposes, this means you'll receive three years' interest all at once - which could land some savers with a tax bill.

For instance, if you were to take advantage of the maximum £100,000 savings limit, after three years you'd have earned just under £1,970 in interest. This exceeds the personal savings allowance for basic-rate taxpayers, which is £1,000.

If you're a higher-rate taxpayer, your personal savings allowance is £500. A savings pot of £30,000 would end up exceeding this if you were to receive the three years' interest in one go, which would be roughly £590.

For those with smaller savings pots, potential tax implications won't be an issue.