NS&I green bonds: The savings account sees its rate upped to 1.3%

National Savings and Investments has launched a new issue of its green savings bonds, doubling the rate of return on offer.

The three-year fixed rate product, which first launched in October, paying a paltry rate of 0.65 per cent will now pay savers 1.3 per cent.

This represents a huge improvement given that the first issue would have meant savers effectively embracing a £3,600 penalty for choosing it over what was available elsewhere, if they maximised the limit allowed to go in.

The minimum investment in Green Savings Bonds is £100, with a maximum limit of £100,000 per person for each Issue.

With the best three-year deal on the market now paying 1.86 per cent, savers stashing away the maximum £100,000 will still be foregoing £1,733 of interest over three years by choosing NS&I’s deal over the best on the market. 

There are also a further three accounts offering 1.85 per cent – all with Financial Services Compensation Scheme protection. 

But despite better returns on offer elsewhere, NS&I’s account may well attract eco conscious savers.

The bonds will help finance the Government’s green spending projects designed to tackle climate change and help make the UK greener and more sustainable. 

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

James Blower, head of digital at Moneyfacts said: ‘The decision to increase the rates by NS&I is not a surprise.

‘Although no numbers have been released, it looks highly likely the decision to increase rate has nothing to do with market conditions but limited take up from savers. 

‘While the improvement in rate is welcome, there is still better returns for savers elsewhere so this remains a product which should only be of interest to savers wishing to fund the green infrastructure products the bonds will support.’

Should savers sign up?

There are signs of fixed rate deals rising across the market following the Bank of England base rate rises in December and earlier this month.

There have been almost 300 rate rises recorded across the fixed rate market since 16 December, according to analysis by Savings Champion, compared to just 50 rate cuts during that time.

The base rate rises also appear to have sparked the top of fixed rate market into life again. 

On Friday, Al Rayan Bank and Tandem Bank boosted rates on all of their fixed deals, propelling both banks to joint market leaders across various fixed rate categories.

With further base rate rises expected and NS&I hoping to hit the Government’s £15billion target set for the bonds, savers may be wise to wait for NS&I and other providers to boost rates further.

Blower said: ‘While I expect there will be more interest at this level, I think NS&I will struggle to attract the £15billion the government announced it was intending to raise so we may well see further increases in the future if they still want to achieve that target.

‘As I don’t believe this increase will be enough to attract the £15billion targeted, I’d certainly recommend savers hold off investing for now and wait for what I expect to be a further increase.’

What about those who have already signed up? 

Although news of the rate rise will come as welcome news to some savers, it will likely be frustrating for the few who have already invested their cash in the green bonds. 

The Green Savings Bonds are a fixed-term investment and have to be held for the full three-year term. 

This means that savers won’t be able to reinvest or withdraw their money from each Issue until it matures.

Savers who stashed money in NS&I’s first issue will unfortunately be stuck at the 0.65 per cent rate until the account matures. 

Of course, these savers are also free to invest any spare cash they may have in the second Issue, but for some it might be too late. 

‘Savers who have invested at 0.65 per cent are likely to feel aggrieved to see the rate double,’ said Blower. 

‘While it has no obligation to do so, it would be a nice gesture if NS&I increased the rate on those to 1.3 per cent in line with what new savers will receive.’

For those who have recently signed up to the first issue of the bonds there may still be an escape route however.

Savers have a 30 day cooling off period and can cancel within 30 days of receiving confirmation of their Bond. 

They can do this online, by phone or by writing to NS&I. 

What other green savings deals are there?

Eco conscious savers might also want to consider other green savings deals before committing to NS&I’s bonds.

We have taken a look at some of the best options currently available 

For those wanting to retain access to their cash: 

RCI bank recently boosted the rates on its E-Volve savings 14 day notice account, from 0.55 per cent to 0.7 per cent.

As the name suggests, savers must give 14 days notice when withdrawing funds from the account meaning it falls just short of being an easy access deal.

RCI Bank is car maker Renault’s global banking group and money in the account is protected up to £85,000 via the Financial Services Compensation Scheme.

RCI Bank’s new savings product will enable savers to put their money towards supporting greener transport and mobility in the UK.

Savers cash will primarily be used to propel the switch to electric vehicles, with deposits being used for the financing of EVs and charging infrastructure. 

For those wanting a better return:

Gatehouse Bank is offering a range of fixed rate deals designed to help grow woodlands across the UK.

For every account opened or renewed, the Bank promises to plant one tree.

Its 18 month fixed rate deal pays 1.51 per cent – more than what NS&I are offering for a deal that will lock your cash away for twice as long.

Savers will need at least £1,000 to get started and thereafter can deposit up to £1,000,000 into the account.

Tandem Bank is another ‘green minded’ savings provider allowing savers to set up an account with as little £1.

It is currently offering some of the highest paying fixed rate deals on the market including a one-year deal paying 1.45 per cent.

By opting to save via Tandem you’ll also be helping to support Tandem Bank’s green lending initiatives, with the aim of helping to make UK homes more sustainable and environmentally friendly.

Other green options: 

Ecology Building Society also offers a range of savings products that it uses to help fund properties and projects it feels respect the environment.

Since 1981 it has lent to over 3,500 projects, supporting individuals, charities, environmental businesses and community-led housing organisations to realise their sustainable living ambitions.

However, its savings rates are hardly going to excite savers.

Its easy-access deal pays 0.1 per cent for example, whilst its 90 day notice account pays between 0.25 and 0.55 power cent depending on the balance.

Those with a balance in excess of £25,000 will begin earning the higher 0.55 per cent rate.

Savers only need £25 to get started and can deposit up to £125,000 into either account.

Another option for eco-conscious savers is Triodos Bank.

The UK arm of the Dutch-founded bank led by environmentalist, Bevis Watts, promises only to lend on projects that make a ‘positive impact’ for people and the planet.

It publishes details about these organisations on its website so its customers can see where their money is going.

It has been recognised as the ‘best sustainable bank’ in the UK at this year’s Responsible Banking Awards, run by CFI.co.

Triodos offers savers the choice of either an easy access account paying 0.15 per cent or a one year fixed rate deal paying 0.4 per cent.