Earlier this week, National Savings & Investments (NS&I) launched a fifth issue of its three-year 'Green Savings Bonds', which earn you a fixed interest rate while supporting green projects. Read more here.
At 5.7 per cent, the rate is competitive, but there are a few things to keep in mind. First, with the best-buy three-year bonds offering up to 6.05 per cent, you are paying a price for trying to help the environment, albeit not much.
Although the choice isn’t huge, NS&I isn’t the only option for a fixed-rate savings account with a green or ethical tilt. Research firm Moneyfacts lists eight other providers offering them, including a few one and two-year bonds that pay more than NS&I – although it does depend on what you consider a ‘green’ choice.
The best-buy deal in this category is with Castle Trust Bank, which offers a one-year bond that pays 5.98 per cent. The bank earns its green label by planting a tree every time an account is funded. Gatehouse Bank, whose accounts pay 5.9 per cent, does the same and is Shariah-compliant, so the money cannot be invested in sectors such as alcohol, tobacco and gambling. Tandem Bank’s accounts offer 5.85 per cent – the bank only lends to consumers, does not fund fossil fuels, and last year about a quarter of the money went towards green home improvements and other sustainable activities.
NS&I’s Green Savings Bonds fund green projects in sectors such as transport, renewable energy, energy efficiency and climate change adaptation. Together with green gilts, they are part of the government’s green financing project, and the government publicly reports on how the money is allocated.
The bonds are backed by HM Treasury, the rate is guaranteed for the whole term, and savers can invest up to £100,000 per person per issue. Just like with any other non-Isa fixed-term account but unlike NS&I's Premium Bonds, the interest earned counts towards the saver’s personal savings allowance and is taxable if the allowance is breached.
The biggest question is whether it makes sense to lock away your money for three years at this stage. The unlucky savers who did this when the first green bonds were issued in October 2021, at a 0.65 per cent rate, missed out on all the subsequent rate rises. Inflation has since depleted the real value of their cash.
It is still hard to get the timing right. The peak of interest rates is nearing, but further increases are still very much on the table. And whether they will come down quickly or stay high for longer is anybody’s guess. In such an uncertain scenario, three years is a long time to lock away your cash.
If you don’t need the money, you may as well think about investing it, perhaps via a low-risk strategy. If you want an environmental, social and governance (ESG) tilt, there are plenty of options with varying levels of risk, including ethical bonds.
Renewable infrastructure trusts could be attractive. The likes of Greencoat UK Wind (UKW) and The Renewables Infrastructure Group (TRIG) are currently going through a rough patch that could mean they are cheap for those who can afford to wait it out, and offer yields in the region of 6 per cent or more.
