ESG Investing  

'Sacrifice on returns': industry critical of govt's new green bonds

'Sacrifice on returns': industry critical of govt's new green bonds

Personal finance experts have criticised the government’s green savings bond, which launched today, saying the rate represents a “sacrifice” on returns.

The Green Savings Bonds went on sale through NS&I today (October 22), with a fixed annual rate of 0.65 per cent over three years. 

The entire investment is protected and guaranteed by the Treasury and allows savers aged 16+ to back the government’s green projects, including zero-emissions buses, offshore wind and low-carbon technologies, along with programmes to help the country adapt to a changing climate like flood defences.

Projects to boost living and natural resources such as planting trees, protecting biodiversity and environmentally sustainable agriculture will also be eligible.

Becky O’Connor, head of pensions and savings at Interactive Investor, said: “Green NS&I bonds may offer a feel-good factor for savers wanting to do their bit, but the interest rate mean they will be making a sacrifice on returns to do so.

“[The bonds] 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.”

Laura Suter, head of personal finance at AJ Bell, agreed it was a “paltry rate” that would go down like a “lead balloon” with savers.

Using figures from Moneyfacts, which show the top three-year accounts at JN Bank and AI Rayan Bank currently pay 1.81 per cent, Suter calculated the green bond would cost savers £350 more based on a £10,000 investment.

Given inflation, Suter added, anyone signing up to a long-term fixed income product needed to think carefully about what interest rates will do during that time.

She said: “Many now expect a rate rise later this year and another next year, although this is by no means certain. But that would mean an uptick in savings rates too, in both the easy-access and fixed-rate market.

"If you lock money away now you’ll miss out on those potential increases."

O’Connor said in order to give investors peace of mind, the government had to clearly set out what the money will be used for.

The government has pledged to report regularly on which projects have been funded and the environmental impact the investment is having.

It will also report on the social co-benefits of the projects funded, such as the number of jobs created and SMEs or households who have benefitted.

Chancellor Rishi Sunak said: “Our world-first Green Savings Bonds give savers across the UK the chance to back the government’s green projects and put their money to work in the fight against climate change.

"The UK is already a world leader in green finance and these innovative new savings bonds will deliver both financial returns and environmental benefits, in a transparent and secure way."

O’Connor said: “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.”