Last week NS&I announced further details of its Green Savings Bonds which were initially flagged in the March Budget. And analysts and advisers have, justifiably, expressed disappointment.
NS&I Green Savings Bonds have a three-year fixed term, meaning that you cannot access money in them before the end of the term, but only pay 0.65 per cent interest. Generally, the longer you lock up your money for, the better rate you should get – but this is not the case here.
Interest rates are expected to rise in the next three years, so if you tie up your money for a rate of 0.65 per cent you could miss out on potential higher interest rates. And “you are paying a real price, because lower rates in a time of higher inflation means you’re highly likely to lose some of the spending power of your money over the three-year term,” says Sarah Coles, senior personal finance analyst at Hargreaves Lansdown. “You need to be clear you’ll be happy withdrawing it in three years’ time, unable to buy the same things your money would stretch to today.”
There are many other three-year savings accounts that pay better rates, two of which have rates almost three times as much at 1.81 per cent, according to moneysupermarket.com as of 26 October. These are Al Rayan Bank 36 Month Fixed Term Deposit into which you have to put a minimum of £5,000 and JN Bank Fixed Term 3 Year Savings Account into which you have to put at least £1,000.
There are a number of other three-year savings accounts offering not much less, with four paying rates between 1.75 and 1.78 per cent, and five between 1.6 and 1.65 per cent, according to moneysupermarket.com as of 26 October.
If you are concerned about your money sitting at a fixed rate for three years there are two-year savings accounts with interest rates of up to 1.76 per cent and one-year savings accounts with rates up to 1.45 per cent.
But NS&I Green Savings Bonds are potentially interesting if you want to put your savings into green infrastructure. Money put into these will go into a HM Treasury general account and be spent on green projects within two years. These are in six key areas: making transport cleaner, renewable energy to help the UK move away from fossil fuels, preventing pollution, using energy in a more efficient way, protecting natural resources and adapting to a changing climate. The government will publish more details about how the money will spent and what the environmental benefits are.
But there are some ethical and green alternatives. For example, Gatehouse Bank 3 Year Fixed Term Green Saver, a Shariah compliant bank account, offers a return equivalent to a 1.78 per cent interest rate. If you are concerned about locking up your money for that long you could instead put it into Gatehouse Bank 1 Year Fixed Term Green Saver for a return equivalent to a 1.3 per cent interest rate, 18 Month Fixed Term Green Saver for a return equivalent to a 1.4 per cent interest rate, or 2 Year Fixed Term Green Saver for a return equivalent to a 1.6 per cent interest rate.
For every Gatehouse Green Saver account opened or renewed, the company funds the planting of a tree in one of four UK woodland projects.
But the question here is, as when making any ethical saving or investment, does it match your ethics? If it does not, it probably isn’t right.
In the case of Gatehouse Bank, while tree planting is a very worthy cause, in terms of scale and impact it is unlikely to be as great as the many projects NS&I Green Savings Bonds will fund.
Other ethical options include Triodos Bank One Year Ethical Savings Bond, which only pays 0.4 per cent interest. But Coles suggests that “if rates rise over the next 12 months you could switch somewhere more rewarding when this comes to an end”.
Tandem Bank, meanwhile, offers 1.15 per cent on its 1 Year Fixed Saver, 1.41 on its 2 Year Fixed Saver and 0.55 per cent on its Instant Access Saver.
An argument in favour of NS&I Green Savings Bonds is safety. NS&I products are 100 per cent backed by the UK government, however much you invest. Most UK bank account providers are covered by the Financial Services Compensation Scheme so if they fail, savers in their products get compensation of up £85,000 per person, per institution.
A way to get round this limit is not to have more than £85,000 in banks run by the same company. But savers can put between a £100 and £100,000 online into NS&I Green Savings Bonds and there are other NS&I products, albeit not focused green projects.
|Three year savings bonds with highest interest rates|
|Account||Interest rate (AER*) %||Minimum deposit (£)|
|Al Rayan Bank 36 Month Fixed Term Deposit||1.81||5,000|
|JN Bank Fixed Term 3 Year Savings Account||1.81||1,000|
|Gatehouse Bank 3 Year Fixed Term Green Saver||1.78||1,000|
|Zenith Bank 3 Year Fixed Term Deposit||1.78||1,000|
|QIB UK 3 Year Fixed Term Deposit||1.77||1,000|
|Source: moneysupermarket.com, 26/10/21|