NS&I green bonds: The savings account sees its rate rise to 1.3%
National Savings and Investments has launched a new issue of its Green Savings Bonds, doubling the offered rate of return.
The three-year fixed-rate product, which was first launched in October, paying a paltry 0.65%, will now pay savers 1.3%.
This is a huge improvement given that the first issue would have meant that savers would have effectively accepted a £3,600 penalty for choosing it over what was available elsewhere, had they maxed out the limit allowed to enter.
Money held in NS&I Green Bonds will go to 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 contract on the market now paying 1.86%, savers who keep the maximum £100,000 will still forfeit £1,733 in interest over three years by choosing NS&I’s contract over the best of the market.
There are also three other accounts offering 1.85% – all with the protection of the Financial Services Compensation Scheme.
But despite better yields on offer elsewhere, the NS&I account may well attract environmentally conscious savers.
The bonds will help fund the government’s green spending plans to tackle climate change and make the UK greener and more sustainable.
Green projects like zero-emission buses, offshore wind and innovative low-carbon technologies will be eligible for funding, along with programs to help Britain adapt to climate change, such as the improved flood defences.
James Blower, head of digital at Moneyfacts, said: “The decision to raise NS&I’s rates comes as no surprise.”
“Although no figures have been released, it seems very likely that the decision to raise the rate had nothing to do with market conditions, but limited participation from savers.
“While the rate improvement is welcome, there are still better returns for savers elsewhere, so this remains a product that should only be of interest to savers wishing to fund the green infrastructure products that the bonds will support.”
Do savers need to register?
There are signs of increased fixed rate trading in the market following the Bank of England’s base rate hikes in December and earlier this month.
Nearly 300 rate hikes have been recorded in the fixed rate market since Dec. 16, according to analysis by Savings Champion, compared to just 50 rate cuts during this period.
Base rate hikes also seem to have revived the top of the fixed rate market.
On Friday, Al Rayan Bank and Tandem Bank raised rates on all their fixed transactions, propelling the two banks into market leaders in various fixed rate categories.
|Account type (minimum investment)||0% tax||20% tax||40% tax|
|Tandem Bank (£1,000+)||1.45||1.16||0.87|
|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|
|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|
|Bank of monuments (£25,000+)||2.20||1.76||1.32|
With further base rate hikes expected and NS&I hoping to meet the government’s £15 billion bond target, savers might be wise to wait for NS&I and other providers to raise 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 has announced it has intend to raise, so we may well see further increases in the future if they still want to hit that target.
“As I don’t think this increase will be enough to attract the targeted £15 billion, I would certainly recommend savers not to invest at this time and wait for what I expect as a further increase.”
What about those who have already registered?
While the news of rising rates is good news for some savers, it will likely be frustrating for the few who have already invested their money in green bonds.
Green Savings Bonds are a fixed-term investment and must be held for the full three-year term.
This means that savers will not be able to reinvest or withdraw their money from each issue until it matures.
Savers who hid money in the first issue of NS&I will unfortunately be locked in at the rate of 0.65% until account maturity.
Of course, these savers are also free to invest whatever money they may have in the second show, but for some it might be too late.
“Savers who invested at 0.65% will likely feel aggrieved to see the rate double,” Blower said.
“Although there is no obligation to do so, it would be a nice gesture if NS&I increased the rate on these to 1.3% in line with what new savers will receive.”
For those who recently subscribed to the first bond issue, there may still be a loophole.
Savers have a cooling-off period of 30 days 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.
What are the other green savings offers?
Environmentally conscious savers might also consider other green savings offerings before committing to NS&I bonds.
We’ve looked at some of the best options currently available
For those who wish to retain access to their cash:
The RCI bank recently raised the rates of its E-Volve savings account with 14 days noticefrom 0.55% to 0.7%.
As the name suggests, savers must give 14 days notice when withdrawing funds from the account, which means this is not an easy access deal.
RCI Bank is the global banking group for carmaker Renault and money in the account is protected up to £85,000 through the Financial Services Compensation Scheme.
RCI Bank’s new savings product will allow savers to invest their money in greener transport and mobility in the UK.
Money from savers will primarily be used to propel the shift to electric vehicles, with deposits being used to finance electric vehicles and charging infrastructure.
For those who want a better performance:
Gatehouse Bank offers a range of fixed rate deals designed to help develop forests across the UK.
For each account opened or renewed, the Bank undertakes to plant a tree.
His 18-month fixed-rate deal yields 1.51% – more than NS&I offers for an offer that will lock your money in twice as long.
Savers will need at least £1,000 to start and can then deposit up to £1,000,000 into the account.
Tandem Bank is another ‘green’ savings provider allowing savers to set up an account with as little as £1.
It currently offers some of the highest paying fixed rate offers on the market, including a one-year contract paying 1.45%.
By choosing to save through Tandem, you will also help support Tandem Bank’s green lending initiatives, with the aim of helping to make UK homes more sustainable and environmentally friendly.
Other green options:
Ecology Building Society also offers a range of savings products that it uses to help fund properties and projects that it believes are environmentally friendly.
Since 1981, it has lent to more than 3,500 projects, helping individuals, charities, environmental businesses and community-led housing organizations achieve their ambitions for sustainable living.
However, its savings rates are hardly going to excite savers.
Those with a balance over £25,000 will start collecting the higher rate of 0.55%.
Savers only need £25 to get started and can deposit up to £125,000 into either account.
Another option for environmentally conscious savers is Triodos Bank.
The UK branch of the bank founded in the Netherlands, led by environmentalist Bevis Watts, promises to only lend for projects that have a “positive impact” on people and the planet.
It publishes details of these organizations on its website so its customers can see where their money is going.
It was recognized as the ‘Best Sustainable Bank’ in the UK at this year’s Responsible Banking Awards, organized by CFI.co.
Triodos offers savers the choice of either a easy access account paying 0.15% or one-year fixed rate contract paying 0.4%.
THIS IS MONEY’S FIVE OF THE BEST SAVINGS OFFERS
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