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NS&I’s Green Savings Bonds branded a ‘flop’

Paloma Kubiak
Written By:
Paloma Kubiak
Posted:
Updated:
29/06/2022

Savers ploughed just £288m into NS&I’s Green Savings Bonds in the five months from launch, below expectation.

The government’s savings arm – NS&I – launched the Green Savings Bonds in October 2021, with money invested in them to help finance green projects, tackle climate change and make the UK more sustainable.

At launch, the Green Savings Bonds offered 0.65% AER fixed for three years as the goal was to “test the appeal of a green retail savings product offered by the government” as it “balanced the interests of savers and taxpayers”.

But a second issue launched in February offered 1.30% AER – double the original rate.

However, it seemed savers weren’t convinced as just £288m was raised at the end of March, NS&Is annual report revealed.

It stated: “Overall, Green Savings Bonds sales were £288m, which is small compared with the £4.4bn of net financing delivered by our core products.

“This is an expanding market and, since we announced our product, there has been a significant increase in the number of green savings products offered by competitors.”

This was against a target of £6bn (plus or minus £3bn). However, the joint target for Green Bonds and Green Gilts was £15bn – which it did hit.

‘Looking pretty miserable’

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “Calling the Green Bond launch a success is being very generous, because it was obvious to anyone with an eye on interest rates that it wouldn’t raise much cash. NS&I has discovered the hard way that we weren’t willing to plough our cash into something with a green label regardless of the rate – even when it came from an incredibly trusted brand like NS&I.

“The £288m it raised isn’t even substantial enough to constitute a drop in the ocean of the £15bn the government wanted to raise through its green financing programme. However, the combination of Green Gilts and Green Bonds raised more than the target – bringing in £16bn.

“NS&I explained that it priced the Bonds ‘cautiously’ to gauge rate sensitivity. The second issue of the bonds at twice the rate in February was still not a market leader, and now, after so many rate rises elsewhere in the market, it’s looking pretty miserable.”

Coles added: “Green Bonds remain one for hugely committed green savers with an unbreakable commitment to NS&I. Everyone else will be looking elsewhere for better returns.”

Jason Hollands, managing director of Bestinvest, said: “In our view the dismal take up of Green Saving Bonds savers isn’t surprising given the very low yields on offer, albeit these rose from 0.65% on the first tranche last autumn – fixed for three years – to 1.3% in February, reflecting the wider pattern of rising rates and yields.

“Bear in mind the 1.3% rate currently available is only fractionally above the Bank of England’s official bank rate of 1.25% – which is set to rise materially over the coming months. It is also deeply negative after inflation is factored in and way below the 3-year fixed term bonds available from commercial banks where the more competitive deals offer rates between 2.5% – 3.0%.

“When savers are utilising more of their cash to meet the higher cost of living, it is hard to see the attraction of locking in to such low returns.”

Hollands added: “In reality this flop with private investors is irrelevant for the UK government, who have been easily able to raise significant amounts of money for its green projects at low rates from institutional investors via green gilt issues. Green gilt issues have so far raised over $16 billion and have been heavily oversubscribed as institutions such as insurance funds and pension schemes leapt at the chance to ‘green’ their portfolios.”