NS&I launched its Green Savings Bonds today, which are offering a 0.65 percent gross/AER fixed-rate over a three-year term. Martin Lewis criticised this rate, noting only savers who put their morals over their money will see the upside.
Martin said: “The Chancellor must really hope that the nation is wearing green trousers as the rate being offered is pants.
“It’s only paying 0.65 percent interest a year, a paltry amount compared to what’s available on the open market – it only just matches the top easy-access savings account, yet with the Green Bonds you have no access to your money and it’s locked away for three years.
“The right comparison is to the top three-year fixed savings account and that pays nearly three times what the Green Bonds are paying. And while NS&I is as safe as it gets, with all UK regulated savings institutions you are protected up to £85,000 per person, so that has no practical advantage for most.
“This is quite simply not an account that those whose focus is maximising interest will look at – it’s likely only something those willing to sacrifice substantial interest in order to support what they hope will be green causes are likely to consider.”
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According to Martin’s analysis, the top rates for a similar fixed-rate account are sitting at around 1.81 percent AER. This means savers could be sacrificing more than half their potential returns by investing in NS&I’s Green Savings Bonds.
Becky O’Connor, the Head of Pensions and Savings, interactive investor, also pointed out there are more substantial offers with NS&I’s other products.
“Green NS&I bonds may offer a feel-good factor for savers wanting to do their bit, but the interest rate means they will be making a sacrifice on returns to do so,” she said.
“The rate of 0.65 percent is not competitive. They also offer a lower rate than you could expect from the Premium Bonds prize fund, so are unlikely to tarnish the appeal of the nation’s favourite savings product for those less committed to the idea of green savings.
“The Government was always going to find it hard to price a product that would naturally appeal as a risk-free way to green your money.
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“There was a need to make it a good enough deal for savers but also be fair to taxpayers and to ensure NS&I didn’t face a deluge of demand. Unfortunately, the rate chosen might not be good enough to tempt the masses, especially in a time of rising inflation. It may also cement the view that anyone who wants to commit their money to positive impact has to sacrifice returns, which does not have to be the case.
“The Government says it will use an amount equivalent to what is raised through the green bonds to fund appropriate projects, such as zero emission public transport, within two years. It says it will update people on how the proceeds are spent.
“This transparency will now be critical to savers who know they will be accepting a lower interest rate, for the peace of mind that they are funding the UK’s green dreams.”
Aside from Premium Bonds and the new Green Savings Bonds, NS&I offers the following options for savers:
- Junior ISA – 1.5 percent
- Income Bonds – 0.01 percent
- Direct ISA – 0.1 percent
- Direct Saver – 0.15 percent
- Investment Account – 0.01 percent
NS&I has struggled with interest rates over the last 18 months or so. In late 2020, the organisation announced major cuts to the majority of its products.
Addressing the cuts in September 2020, Ian Ackerley, NS&I Chief Executive, said: “Reducing interest rates is always a difficult decision.
“In April we cancelled interest rate reductions announced in February and scheduled for May 1. Given successive reductions in the Bank of England base rate in March, and subsequent reductions in interest rates by other providers, several of our products have become ‘best buy’ and we have experienced extremely high demand as a consequence.
“It is important that we strike a balance between the interests of savers, taxpayers and the broader financial services sector; and it is time for NS&I to return to a more normal competitive position for our products.”
These cuts appeared to be negatively received by savers.
In late August, data from NS&I showed Britons withdrew around £13billion from NS&I between April and June 2021.
This was more than double the £6.1billion taken out in 2020.
NS&I addressed these results at the time: “The impact of the interest rate reductions made by NS&I towards the end of 2020 has continued to be reflected in the volume of outflows NS&I experienced in Q1 2021-22, while the opening up of the economy has also had an effect on savers’ behaviour.”