Should you wait for the NS&I green bonds?

At the Budget earlier this year, the chancellor announced a new green savings bond.

The aim is to allow the public to play a part in the government’s projects to tackle climate change and finance green spending projects. It forms part of the objective to reduce greenhouse gas emissions to net zero by 2050.

But four months on from the announcement, we still don’t know the full details of what’s being offered.

What do we know?

The bonds will be available to buy online through National Savings and Investments (NS&I). They’ll run for three years and offer a fixed interest rate for that period. Because it’s a fixed rate product, you’ll get a guaranteed rate for the duration, but you won’t be able to access your money until it ends.

All money will be given to HM Treasury and held in a general account. The Treasury will use the money within two years and publish details about how it’s being spent and what the environmental benefits are.

Spending will be split across six key areas:

1. Making transport cleaner
2. Preventing pollution
3. Renewable energy over fossil fuels
4. Using energy in a more efficient way
5. Protecting natural resources
6. Adapting to a changing climate

What’s left to confirm?

Two key bits of information are still missing. The rate and the date.

We still don’t know what return savers are expected to get. But those expecting a competitve rate could be disappointed.

It’s worth remembering that by saving in these bonds, you’re lending money to the government. But NS&I isn’t the only place the Treasury can borrow from. They can also issue government bonds (gilts), which can be bought by individuals, companies or even the Bank of England. While there isn’t a comparable three-year gilt, a four-year gilt at a recent auction offered an average yield of 0.281%.

Looking at the wider market, the average rate on a three-year fixed term saving products is 0.64%. The best in the market is currently 1.36%. If the Treasury wanted to compete at that level, it would be a big cost to the taxpayer. That’s because they can raise money through cheaper means.

There’s also no clear date on when they’ll be offered, other than “later in the year”.

Are they worth the wait?

The choice of three years is slightly unusual. Figures from UK Finance show the amount of money being saved into fixed terms has been diminishing over the past decade, with the vast majority of savings being kept in instant access accounts. So it doesn’t reflect recent savings habits.

One-year fixed terms are popular, but there’s generally less demand the longer you fix for. Fixed terms run up to five or seven years, but because the rates are usually higher on longer terms, the government might not want to match them. That could be why they’ve settled for a rough midpoint of three years.

Ultimately the bonds could appeal to those who don’t need access to their money and want to make an environmental impact with it. But they might have to wait a while longer before they’re available, and it could come at a price.

What else can you do with your money?

There are other savings accounts in the market, although the rates aren’t always competitive.

If you want to use your savings to make a positive impact on society, there are other things you could consider aside from green savings accounts. Sharia banks and building societies offer an alternative way to make an impact.

Sharia banks often offer top rates, but with a slight difference. To comply with Sharia law, these banks can’t pay interest. Instead, you’ll receive an expected profit rate.

There are strict rules about what Sharia banks can do with your money and these can then have a knock-on positive impact. For instance, they can’t invest it in anything seen as harmful under Islamic law. This includes companies that support gambling, tobacco, alcohol or arms. Each bank will have an oversight committee which will govern what they deem to be Sharia-compliant.

Find out more about Sharia banking

Building societies are owned by their members as mutual organisations and can therefore pass benefits back to their customers or their local community. They often pay competitive rates on their savings products.

A simple way to boost your cash

With big banks paying paltry returns, lots of people will be looking elsewhere to get their cash working harder. The green bonds could be another option for savers – but will they be worth the wait?

Active Savings could help you get more from your cash and save on your terms. With one online account you can spread your money across savings products from lots of banks and building societies. This often includes Bank of London and The Middle East (BLME), a Sharia bank.

If you want to be able to access your money quickly, you could choose an easy access product. In one example you could get £102 more than you would from the worst high street accounts after a year, based on a £30,000 pot and the products paying interest annually. What you will actually receive will depend on your circumstances and the products available.

High street banks offer instant access accounts which allow immediate access to your money. Active Savings offers easy access products and withdrawals usually take one working day.

If you’re prepared to lock your money away for a period of time and earn even better returns, you can choose fixed terms from just a few months up to five years.

You could use fixed terms to set money aside for a particular goal. For example, to pay for school fees in three months time, or a tax bill in January. Just choose the product with your preferred length and make sure it matures before you need to pay the bill. You’ll likely get a better return than leaving the money sat in an easy or instant access account.

This article gives you information to help you make the most of your money, but it isn’t personal advice. Please remember that inflation reduces the spending power of cash. If you’re not sure if a certain action is right for you, please ask for advice.

AER (Annual Equivalent Rate) – AER shows what the interest rate/expected profit rate would be if it was paid and compounded once each year. It helps you compare the rates on different savings products.

Gross – the interest rate without any tax removed. Interest/profits are paid gross. You are responsible for paying any tax due on interest/profits that exceed your Personal Savings Allowance to HM Revenue & Customs. Tax treatment can change.

Expected profit rate (EPR): Islamic banks offer an expected profit rate rather than interest on their savings products in order to comply with Sharia banking principles.