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‘Savage’ cut to NS&I’s Green Savings Bonds as new issue pays under 4%

‘Savage’ cut to NS&I’s Green Savings Bonds as new issue pays under 4%
Paloma Kubiak
Written By:
Paloma Kubiak
Posted:
14/11/2023
Updated:
14/11/2023

NS&I has slashed the rate offered on its new issue of the three-year Green Savings Bonds, from 5.7% AER just yesterday to 3.95% AER today.

In just one day, NS&I – the Government’s savings arm – has cut the rate on its green bonds by 30%.

Issue 6 of Green Savings Bonds now offers a fixed rate of 3.95% gross/AER over a three-year term, allowing savers to invest between £100 and £100,000.

Money invested in Green Savings Bonds is used to help fund green Government projects across the UK as part of the UK Government Green Financing Framework.

Given the lower rate with the new issue, it means Green Savings Bonds have dropped out of the best buy tables.

According to Laura Suter, head of personal finance at AJ Bell, for someone with £10,000 saved, that’s a loss of £577 in interest across the three years if interest is compounded.

Meanwhile, Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “You can make far more on your savings elsewhere, so you’d need an over-riding passion for funding Government green projects to prioritise this account.”

According to Savings champion data, the current best buy in the three-year fixed rate bond category is offered from JN Bank UK paying 5.9% AER/gross.

Coles added: “The rate on NS&I three-year green bonds has been subjected to a savage pruning, from flourishing almost at the top of the market, to wilting away well below the most competitive rates.

“For anyone keen to find a better deal, despite the fact the market has dropped from the peak, you can still find some strong rates. Deals close to 6% are the kinds of rate that savers could only dream of for well over a decade. However, there’s every chance they’re set to fall further, so if you’re planning to fix, don’t hang around.”

A re-cap on Green Savings Bonds

Investors need to be aged 16 or over to purchase the bonds from NS&I and you must have a UK bank account capable of receiving BACS payments.

Launched in October 2021, money invested in Green Savings Bonds is used to help fund green Government projects across the UK as part of the UK Government Green Financing Framework. This includes making transport greener, using renewable energy over fossil fuels, preventing pollution, using energy more efficiently, protecting natural resources and adapting to a changing climate.

They’re designed to be held for the duration, so you can’t withdraw funds during the period, though there is a 30-day cooling off period. Interest is earned daily and added once a year on the investment’s anniversary and paid on maturity.

They can be opened and managed online, though for anyone without internet access, NS&I says customers should call 08085 007 007.

As of 31 March 2023, more than £915m had been invested in Green Savings Bonds compared to £288m a year earlier when they were branded a “flop”, before the rate offered started to climb.

The funding raised in Green Savings Bonds sits outside of NS&I’s Net Financing target set by HM Treasury each year, which recently overshot its budget.

Coles added that the move to cut the rates hasn’t been driven by NS&I’s fundraising targets, because the green bond sits outside that.

“The amount of money it aims to raise is agreed between the Treasury and NS&I, and based on how much it wants to raise through the bonds – and how much through gilts. Clearly it has decided it was paying more than it needed to in order to raise this money at 5.7%.”