Should you invest in green savings bonds?

 Highlights

• Paying a low-fixed rate of 0.65% AER over a three-year term, NS&I's new Green Savings Bonds are on sale since 22 October.
• The bonds will be used to bankroll the eco-friendly Government projects and fight climate change.
• For at least three months, the green bonds will be sold online along with NS&I, which will help savers to lock away funds in the range of £100 to £100,000. 

Despite being offered at one of the worst rates on the market, the world's first green savings bond is on sale now with National Savings and Investments (NS&I) from 22 October. On investing in the three-year fixed bonds to bankroll the eco-friendly Government projects, an interest of only 0.65% will be paid to the savers. Yet over 80 alike savings accounts are available to invest in that pay better. 

Should you invest in green savings bonds?

Amid rising inflationary pressures, interest rates are anticipated to be increased by the Bank of England soon. Paltry rate will potentially go down 'like a lead balloon', as per AJ Bell’s head of personal finance, Laura Suter. She said that £196 would be returned on investing £10,000 in the new green bonds. As compared to the top-paying equivalent account giving an interest of 1.81%, this return falls short by over £350.

She added that rising interest rates by BoE will in turn result in rising saving rates, which means that this equation of returns would make even less sense now.

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Many expected that the new product could lead to a triple win for NS&I, which includes a great rate, a product backed by Government, and channelisation of money towards green projects, but that’s not the case. According to the UK Treasury, the bonds, which were initially announced in the March budget, will support in financing a range of green projects that are related to eco-friendly transportation and renewable energy.

It said that as per research, a lower return on their savings would be accepted by 42% of the people aged between 18 and 34 years, if their money was channelised towards green and environment-friendly projects. 

RELATED READ: 5 stocks you can buy amid UK green finance overhaul

According to Chancellor Rishi Sunak, savers across the UK will get a great opportunity to invest in the green projects of the UK Government through these green savings bonds and support the UK’s Net Zero goals while helping the cause of fighting climate change.

For at least three months, the green bonds will be sold online along with NS&I, which will help savers to lock away funds in the range of £100 to £100,000. However, the only fact appealing to the savers is that their money will be put to good use and will be provided protection by the Treasury, according to personal finance analyst at Hargreaves Lansdown, Sarah Coles.

She said that for the people who are willing to follow the path of sustainability and do good for the planet, the rates are very unsatisfactory. A better rate can be opted for by those who are concerned about the environment with Gatehouse Bank's three-year fixed Green Saver account. It pays a comparatively higher return of 1.78%, and in addition to that, a tree is planted by the bank on behalf of all its customers. 

According to Rachel Springall of Moneyfacts, the bonds will be gradually taken up and there would not be a stampede-like situation in the market. On the brighter side, savers will be attracted to NS&I as it is a trusted brand and provides a safe haven to them while protecting them from extreme market volatility.

RELATED READ: Can green banks be a reality in the UK?

Bottom line

The Green Bond market is growing exponentially across the globe due to rising its positive environmental impact in a world moving towards a climate catastrophe. They can help in financing major sustainability projects while mutually benefiting the investors. But the launch of NS&I's new Green Savings Bonds has disappointed the environmentally conscious but money-savvy savers due to less rates. Savers will be incentivised to go for green savings bonds if they’re offered higher returns.