National Savings and Investments (NS&I) has slashed the rate offered on its three-year Green Savings Bonds. But the government-backed operator isn't the only provider cutting interest on fixed-rate accounts.
Rates on all bonds lasting one to five years have begun to drop for the first time in more than two years as providers adjust deals to meet expectations of a calmer economic outlook in the future.
Here, Which? takes a closer look at how the account stacks up against other three-year deals on the market, and we flag up what you need to know before investing.
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What does the new Green Savings Bond offer?
The Green Savings Bond was launched by NS&I in 2021 to encourage investment in environmental projects. It can be opened with a minimum deposit of £100, up to a maximum of £100,000.
The sixth issue of Green Savings Bonds pays a fixed rate of 3.95% AER for three years, but that's a 1.75-percentage-point drop compared with the previous issue, which paid 5.7% AER.
It means someone who invests £10,000 will earn £605 less in interest across the three years compared to a saver who opened the previous issue of the account. That's assuming interest is compounded every year.
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.
Why has NS&I cut rates now?
NS&I told Which? that its decision to offer a more modest rate on its Green Savings Bonds is in response to interest rates in the fixed-term market changing since the product's last issue in August 2023.
Indeed, NS&I isn't the only provider cutting rates recently. A number of banks and building societies have axed their top rate deals following the Bank of England's decision to pause the base rate at 5.25%.
Moneyfacts data shows the average interest for longer-term fixed accounts fell from a high of 5.12% in September 2023 to 5.02% this month.
Can you get a better rate elsewhere?
While the current deal offered by NS&I's three-year savings bond is far better than its first iteration offering 0.65% AER, it's well below the average 5.02% offered for longer-term fixed accounts in November.
This table shows the top rates for three-year fixed accounts, ordered by AER/EPR.
| Account | AER/EPR | Minimum deposit |
|---|---|---|
| JN Bank Three-Year Fixed-Term Savings Account | 5.9% | £1,000 |
| Al Rayan Bank 36-Month Fixed-Term Deposit* | 5.6% | £5,000 |
| Cynergy Bank Three-Year Fixed-Rate Bond | 5.55% | £1,000 |
| Bank of London and The Middle East Premier Three-Year Deposit Account* | 5.5% | £1,000 |
| Close Brothers Savings Three-Year Fixed-Rate Bond | 5.45% | £10,000 |
Source: Moneyfacts. Correct as of 15 November 2023 but rates are subject to change. *The accounts from Al Rayan Bank and Bank of London and The Middle East are Shariah-compliant and so pay an 'expected profit rate' (EPR) as opposed to an 'annual equivalent rate' (AER).
NS&I now sits significantly below the current top provider for a three-year bond, which is from JN Bank and pays 5.9%. Challenger banks and Islamic banks also continue to dominate the market, so savers should look beyond the high street for the best rates.
NS&I's deal also fails to beat the current rate of inflation, which fell from 6.7% to 4.6% in October 2023. It means savers can find inflation-busting deals for the first time in two years. Which? analysis of Moneyfacts data found half of all accounts on the market now beat the CPI figure.
However, these inflation-beating deals may not be around for long, so savers will need to act quickly to grab the top deals on offer.
Should you invest in NS&I's Green Bonds?
The rate may not lead the market, but there are other reasons why savers may choose to open an NS&I Green Savings Bond.
Help the environment
The clue is in the name. Money saved with NS&I’s Green Savings Bonds will be used to fund 'green' projects picked by HM Treasury.
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.
Savings protection
NS&I might not be attractive for its high rates anymore, but savers might be drawn to the level of protection it can offer.
All funds deposited are backed by the Treasury, so there's no limit on compensation if NS&I goes bust.
Deposits held in other UK-authorised banks, building societies and credit unions are covered up to £85,000 per person, per institution under the Financial Services Compensation Scheme (FSCS).
- Find out more:FSCS explained
