NS&I more than doubles the rate of its Green Savings Bonds – how much can you earn? - Which? News (2024)

National Savings and Investments (NS&I) has today more than doubled the rate of its Green Savings Bonds.

The new issue will pay a fixed rate of 3% AER over a three-year term. It's the third time the rate has been boosted since the bonds were first launched last October.

The government-backed savings bank says the changes will help savers fund vital green projects in the UK.

Here, Which? explains what you need to know about the bonds and how they compare with the rest of the market.

How much can you earn?

The third issue has a fixed rate of 3% AER over a three-year term and can be opened with a minimum deposit of £100 up to a maximum of £100,000.

If you were to open an account with £10,000, your savings would be worth around £10,940 in three years – a profit of £940.

It’s important to remember that you have to lock your money away for three years and it cannot be withdrawn during this time.

• Find out more:what is National Savings and Investments?

How do NS&I's rates compare?

For savers who are primarily interested in getting the most competitive interest rate, NS&I Green Bonds may fall short.

The current top rate for a three-year fixed-term savings account is 3.45% AER and is offered by JN Bank.

The next-best rate is 3.4% EAR (expected profit rate), and is offered by Bank of London and The Middle East. This bank is Sharia-compliant, which means it will not pay interest on your savings, but will instead pay a profit that’s generated from the savings deposits.

While it's not market-leading, NS&I's rate increase now places the Green Savings Bond in the top third of the three-year fixed savings table – a big jump from where it previously ranked.

• Find out more:how to find the best savings account

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How NS&I's Green Bond rates have changed

When Green Savings Bonds were last year they had a dismal rate of 0.65% AER over a three-year term.

According to data obtained in Freedom of Information request by This is Money, just £102m was deposited into the bonds during the first four months at this rate. By comparison, savers deposited more than £2.5bn in NS&I’s premium bonds over the same period.

Take-up improved in February (£173m invested in a couple of months) when the rate doubled to 1.3% AER, even though the rate offered was still far below the competition.

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What makes NS&I's bonds 'green'?

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.

At the moment, it's difficult to compare NS&I's green credentials with other savings providers. When Which? asked NS&I about the specific projects, it told us the government would produce a report in the autumn revealing how the money is being spent and what its environmental benefits are.

Which? research in 2021 looked into the publicly available sustainability information from a range of savings providers, to find out how they fared on topics such as carbon management and reporting, ethical lending policies and transparency.

Once further details are released about how deposits from NS&I's Green Savings Bonds are being used, we may be able to see how they compare with other savings providers offering sustainable options.

• Find out more:the most sustainable savings account providers

Why NS&I doesn't offer market-leading rates

NS&I has often faced criticism for not offering higher interest rates, but there's a reason behind this.

When we asked NS&I about its rates earlier this year, it told us that it generally looks to position itself in the third quarter of savings tables. It said that as a government institution, it must strike a balance between the needs of savers (by offering fair rates) and taxpayers (by raising finance for the Treasury).

With these factors in mind, it says it tries to ensure rates are competitive without distorting the market.

When we specifically asked about green bonds, retail director Jill Waters told Which? it was a small niche market, and it didn’t want to drain money from existing savings bonds to go into its own bonds. But it was still keen to introduce new customers into the green savings market.

• Find out more:best savings accounts to open with £1 or less

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

If you want to make choices for your savings that are in line with a drive to be greener with your money, then this account could be a way to do that. But here is what else you need to consider:

Impact of inflation

Inflation, as measured by the Office for National Statistics (ONS), rose to 10.1% in July – the highest figure in 40 years.

When you keep money in your bank, you'll likely be earning interest, which should help to balance out the effects of inflation. However, if your cash isn't growing in interest at the same rate of inflation or more, it will in effect lose value.

It's now been more than a year since any savings account has matched inflation, and NS&I's improved rates don't come close.

At a time when the value of your cash is being eroded, it’s important to shop around to secure the best rate you can. Especially as your money will be locked away for three years with these bonds.

You can find the latest market-leading rates in our guide on finding the best savings account.

• Find out more:inflation rose to 10.1% in July

Savings protection

NS&I might not be attractive for its high rates, 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.

• Find out more:should I get premium bonds?

Possible tax implications

While interest is earned daily and added once a year on the bond's anniversary, it's only actually paid when the bond matures after three years. For tax purposes, this means you'll receive three years' interest all at once. This could land some savers with a tax bill.

For example, if you were to take advantage of the maximum £100,000 savings limit, after three years you'd have earnt roughly £9,405 in interest. This exceeds the personal savings allowance for basic-rate taxpayers, which is £1,000.

If you’re a higher-rate taxpayer your personal savings allowance is £500, which means investing just over £5,400 would end up exceeding this figure.

This won’t be an issue for those with smaller pots to invest.

• Find out more:personal savings allowance and tax on savings interest

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.

This is worth considering if you find online banking difficult or if your internet access is limited.

Cooling-off period

If you get the bonds but change your mind, it’s good to know there is a cooling-off period.

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.