- Interest rates paid by Green Bonds were sharply cut
- There are now far more attractive three-year deals on the market
National Savings & Investments (NS&I) has cut the interest rates on its three-year 'Green Savings Bonds', which now pay considerably less than the best accounts available on the market.
Today the organisation released a sixth issue of the bonds, offering a fixed rate of 3.95 per cent for three years. The fifth issue, launched in the summer, paid 5.7 per cent but is no longer available to new investors.
The current rate falls well shy of the best-buy three-year bond available on the market, which is offered by JN Bank and returns 5.9 per cent, according to research firm Moneyfacts.
The NS&I bonds fund green projects in a range of sectors, including transport, renewable energy, energy efficiency and adapting to climate change. Savers can invest between £100 and £100,000 per person per issue. The first issue of green bonds launched in October 2021 with a rate of 0.65 per cent.
This is the first cut in rates by NS&I in some time. Over the past year, it has repeatedly increased rates on its savings products to try and keep up with the competition, often becoming a 'best buy'.
But in October, it had to pull its best-buy one-year bonds after just a few weeks due to how popular they had been with savers. The move prompted analysts to suggest that interest rates on savings accounts might be peaking and that savers looking to lock in a fixed rate should consider moving quickly. Since then, some of the top-paying accounts have disappeared from the market.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said NS&I clearly decided it was paying more than it needed to in order to raise money through its green bonds, and that you’d now “need an over-riding passion for funding government green projects to prioritise this account”.
“For anyone keen to find a better deal, despite the fact the market has dropped from the peak, you can still find some strong rates,” she added. “However, there’s every chance they’re set to fall further, so if you’re planning to fix, don’t hang around.”
NS&I’s green bonds are backed by the HM Treasury and the rate is guaranteed for the whole term. Interest on the bond is earned daily, added once a year and paid on maturity. At that point, it counts towards the saver’s personal savings allowance and is taxable if the allowance is breached, unlike NS&I's Premium Bonds.
