Will eco-drive deliver?
NS&I GREEN SAVINGS BONDS
SAVERS will soon have an opportunity to do their bit for the planet and get a decent return on their money if Chancellor Rishi Sunak’s much-vaunted Green Savings Bonds live up to the hype.
Yet many fear that the bonds, from Treasury-backed bank National Savings and Investments (NS&I), will struggle to do either.
Sunak originally announced the scheme in his Budget in March, and last Thursday he fleshed out further details, but without answering the one question that every saver wants to know in this era of record low interest rates: how much interest will they pay?
The first batch of bonds is set to go on sale in September, helping the Government raise £15billion to invest in projects that aim to tackle climate change, such as green transport, renewable energy and energy efficiency.
They will run for a three-year term and savers will be able to put in between £100 and £100,000 each, but can only invest online at nsandi.com.
Britons are sitting on billions of pounds worth of savings, after a year of not being able to spend their cash in lockdown, and the Treasury will be hoping that some of this money will find its way into the bonds.
As with other NS&I products such as Premium Bonds, savers’ money is backed by the Government, therefore it is 100 per cent secure. The interest is not tax-free but will count towards the personal savings allowance in the year that the bond matures.
This allows basic rate taxpayers to pocket £1,000 of savings interest without paying income tax, while higher rate taxpayers can earn £500.
Kate Smith, head of pensions at
Aegon, said the bonds could be timely as demand for green savings is accelerating as consumers rush to include environmental, social and governance (ESG) investments in their pensions and stocks and shares Isas.
“Savers put almost £1billion a month into ESG funds last year, up two thirds on 2019,” she said.
While many savers will want to do their bit for society and the planet, they also need to get a decent reward.the big question is whether Sunak will be able to deliver it.
Right now, the Government can raise money to invest in its green agenda on the bond market, where it can borrow from around 0.2 per cent over three years.
Savers will want a higher return than that, but Anna Bowes, co-founder of Savings Champion, said NS&I will struggle to offer a market-leading rate as the returns on savings bonds have increased slightly.
Sharia provider Gatehouse Bank already offers an eco-friendly product in its Green Saver Bonds, which pays 1.25 per cent over three years and 1.60 per cent over three years, Bowes said.
By contrast, the NS&I recently slashed its savings rates and its Direct Saver account now pays 0.15 per cent, while its Income
Bonds offer just 0.01 per cent.
Sunak’s Green Savings Bonds will have to pay a lot more than that to avoid getting a dirty reputation.