NS&I launches Green Savings Bond paying 5.7% - how does it compare?

National Savings & Investments (NS&I) has boosted the rate offered on its three-year Green Savings Bond in an effort to encourage investment in environmental projects.

The government-backed operator will now pay a fixed rate of 5.7% AER for three years, a 1.5 percentage point jump compared to the previous issue which paid 4.2% AER.

It's the fifth issue of the Green Savings Bond following its inception in 2021 when the original rate was 0.65%. 

Here, Which? takes a closer look at how the account stacks up against other three-year deals on the market and what you need to know before investing.

What does the new Green Savings Bond offer?

The fifth issue of the Green Savings Bond pays a fixed rate of 5.7% for three years and can be opened with a minimum deposit of £100 up to a maximum of £100,000.

It’s important to remember that you have to lock your money and it cannot be withdrawn during this time. Interest is paid in one go when the bond matures after three years - meaning you could have to pay tax on your returns depending on how much you invest. More on this below.

Those who opened previous issues of the Green Savings Bond will not see a change to their rate as the bonds are fixed for three years. However, savers who invested in bonds at the lower 4.2% rate within the past 30 days may have time to switch to the better 5.7% deal.

Find out more: 

How does the rate compare? 

While interest on NS&I three-year savings bond has improved, the rate still lags behind traditional fixed-term savings accounts offered by competitors.

The top rate for a three-year fixed is currently 6.05% AER with Recognise Bank. This is followed by Bank of London and The Middle East, RCI Bank UK and Hodge Bank, which all offer 6%.

A saver depositing £20,000 with the leading 6.05% rate would make around £3,854 in interest, while the same deposit with NS&I would bring in a lower £3,618 return. 

NS&I's rate falls short of the leading challenger banks, however, it does offer better rates than most high street banks and building societies. The NS&I Green Savings Bond, is currently around 25th in the interest rate rankings for three-year fixed accounts.

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Should you invest in NS&I's Green Bonds?

As well as the interest rate, there are a few other things to consider: 

Helping 'green' projects

Money saved with NS&I’s Green Savings Bonds will be used to fund 'green' projects picked by the Treasury. 

This includes eco-friendly transport systems, using renewable energy over fossil fuels and protecting natural resources.

The government says funds raised from the bonds will be invested in green projects within two years.

As of March this year, more than £915 million had been invested in Green Savings Bonds, compared to £288 million at the same point the year before.

NS&I’s chief executive, Dax Harkins, said: 'This is a great opportunity for savers who want to see a guaranteed return while also making a difference with their savings by helping to make the world greener, cleaner and more sustainable.'

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Savings protection

NS&I might not be attractive for its leading rates, but savers are offered comfort by its longevity and trustworthiness. 

All funds deposited are backed by the Treasury, and there's no limit on compensation if NS&I goes bust. 

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Possible tax implications 

Unlike an Isa or NS&I's premium bonds, interest earned from the Green Savings Bond is taxable.

Interest is earned daily and added once a year on the bond's anniversary. It's then paid when the bond matures after three years, so you'll receive three years' interest all at once - meaning your tax-free personal savings allowance could be breached. 

Basic rate taxpayers have an allowance of £1,000 a year before their interest rewards are taxed by 20%. Higher-rate taxpayers have a £500 allowance before paying 40% in tax, while additional-rate taxpayers do not have a personal savings allowance.

This means, a basic rate taxpayer could put in just over £5,526 in Green Savings Bonds before they breach their tax-free personal savings allowance. Meanwhile, higher-rate taxpayers would start paying tax on their interest earnings if they put in just over £2,763.

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Online-only 

The bonds are available to purchase and manage online; NS&I says this means it will send out less paper. However, if you cannot do this you are able to call NS&I to discuss your options on 08085 007 007.

Cooling-off period 

Investments can be made individually or jointly, and investors need to be aged 16 or over.

You can cancel within 30 days of receiving confirmation of your bond. NS&I will refund any money plus any interest earned within 14 days.

Savers who invested in bonds at the lower 4.2% rate within the past 30 days may be able to cancel and switch to the better 5.7% rate.

What other NS&I products are there?

The table lists the other NS&I products on the market.

As with the Green Savings Bond, other NS&I products fall short of the leading rates.

For one-year accounts, the top rate currently on the market is 6% AER which is offered by multiple challenger banks. Meanwhile, the one-year Guaranteed Income Bonds and Guaranteed Growth Bonds, offered by NS&I, come in at 5.12% and 5%.

And it's a similar story for instant access accounts - the top rate on the market is currently 4.8% compared to the NS&I offer of 3.65% on its Direct Saver and Income Bonds. 

As for Isas, the best rate for an instant access account is 4.43% AER from Shawbrook Bank. This is way ahead of the 3% offered by the NS&I Direct Isa. The NS&I Junior Isa pays 4% compared to 4.95% offered by Coventry Building Society. 

Find out more: 

source https://www.which.co.uk/news/article/nsi-launches-green-savings-bond-paying-5.7-how-does-it-compare-an9oL9r5opMB
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