COP26: Three-year green savings bonds launched by Treasury-backed NS&I

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Green savings bonds giving savers across the UK the chance to back the Government’s environmental projects are being made available to take out online.

Savers aged 16 or over can take out the bonds, which pay a fixed annual rate of 0.65% over a three-year term, via Treasury-backed savings provider NS&I’s website.

The bonds, unveiled in the spring 2021 budget, will be on sale for a minimum period of three months, NS&I said. The minimum investment is £100 with a maximum limit of £100,000 per person.

The full amount deposited will be held for three years and cannot be withdrawn during this time.

Experts said savers could get significantly better rates elsewhere.

Martin Lewis, founder of MoneySavingExpert.com, said: “The Chancellor must really hope that the nation is wearing green trousers as the rate being offered is pants.

“It’s only paying 0.65% interest a year, a paltry amount compared to what’s available on the open market – it only just matches the top easy-access savings account, yet with the green bonds you have no access to your money and it’s locked away for three years.”

Mr Lewis added: “This is quite simply not an account that those whose focus is maximising interest will look at – it’s likely only something those willing to sacrifice substantial interest in order to support what they hope will be green causes are likely to consider.”

Andrew Hagger, a personal finance expert from Moneycomms, said: “We knew these bonds were on the cards but no announcement was made on the rate until now – and perhaps you can see why – 0.65% is way out of kilter with the market.”

Rachel Springall, a finance expert at Moneyfacts.co.uk, said: “It’s encouraging to see an initiative to support green projects, but at 0.65% fixed for three years, savers could get a much higher rate elsewhere.

“Indeed, there are alternative brands offering green products, such as Gatehouse Bank which pays 1.78% gross as an expected profit rate on its three-year fixed green saver where a tree is planted on the savers’ behalf.

“Some savers may not be too keen to lock their money away for two or three years, but there are fixed bonds for 12 to 18 months that pay over 1%. Savers could also seek out mutuals which support local causes, and some even pay a reasonable return on their easy access accounts at the moment.

“The positive side is that NS&I is a trusted brand and there will be savers attracted to them as a safe haven for their cash.”

Sarah Coles, senior personal finance analyst, Hargreaves Lansdown, said: “NS&I is relying on savers who are willing to pay a price for going green with their savings.

“If you came across an account offering 0.65% over three years in any other context, you wouldn’t give it a second glance. You can currently get 1.81% from Al Rayan over three years, and even 1.45% from the same bank over one year.”

Laura Suter, head of personal finance at AJ Bell, said: “Why would savers lock their money away for three years for the same interest rate they can currently get in an easy-access savings account? This equation makes even less sense now the nation is looking down the barrel of an interest rate rise from the Bank of England, which will lead to a hike in savings rates.”

Becky O’Connor, head of pensions and savings, Interactive Investor, said transparency over where the funds are spent “will now be critical to savers who know they will be accepting a lower interest rate, for the peace of mind that they are funding the UK’s green dreams”.

The landmark bonds are being launched less than two weeks ahead of the Cop26 climate conference.

Funding

Green projects such as zero-emissions buses, offshore wind and innovative low-carbon technologies will be eligible for funding, along with programmes to help adapt to a changing climate such as flood defences.

Projects to boost living and natural resources such as planting trees, protecting biodiversity and environmentally sustainable agriculture will also be eligible, the UK Government said.

Chancellor Rishi Sunak said: “Our world-first green savings bonds give savers across the UK the chance to back the Government’s green projects and put their money to work in the fight against climate change.

“The UK is already a world leader in green finance and these innovative new savings bonds will deliver both financial returns and environmental benefits, in a transparent and secure way.”

The Government said research has found that around 80% of people aged between 25 to 44 would be very or fairly interested in the concept of a green savings product, and 42% of 18 to 34-year-olds would be willing to accept a lower return on their savings if they knew their money was being put towards green projects.

And because the bonds are offered by NS&I, which also offers Premium Bonds among its products, 100% of the investment is protected and guaranteed by the Treasury.

Ian Ackerley, NS&I chief executive, said: “As well as helping the environment, savers will see a fixed return on their investment and will also benefit from NS&I’s 100% security on all capital invested.

“Green savings bonds will be on sale for at least three months, giving savers ample opportunity to invest and the bonds will be available to purchase and manage online.”

The Government will report regularly so savers can see which projects have been funded and the positive environmental impact their investment is making.

The social benefits of the projects funded will also be published, so savers will be able to track metrics such as the number of jobs created, and SMEs or households who have benefited.

Sean Kidney, CEO of Climate Bonds Initiative, said: “Every government has to green their budgets to meet climate targets. The UK’s landmark green savings bonds show just how that greening can and will be funded. It serves as an example to the world.”

Rhian-Mari Thomas, CEO of Green Finance Institute, said: “Following the success of the UK’s first two green gilt issuances, it’s great to see the launch of the new green savings bonds, which will allow savers to put their money to work for the benefit of the environment.

“This is another important step to channel investment towards building a green, prosperous and inclusive UK economy, and an opportunity for savers to get involved.”

In the last month, the UK has issued £16 billion of green sovereign bonds, with a record-breaking debut issue of £10 billion that attracted the largest ever order book for a green bond, followed up by a successful second issue of £6 billion.

The UK has also clamped down on “greenwashing” where organisations make misleading environmental claims, and set standards for environmental reporting with requirements for certain large businesses to set out their green credentials.

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