The government has doubled the interest rate of its green savings bond, following an initial “lacklustre” launch back in October.
The Green Savings Bonds, which is on sale through NS&I, today (February 15) saw its three–year fixed rate jump from 0.65 to 1.3 per cent.
The bond’s first issue had attracted criticism from the industry, which said it represented a “sacrifice” on returns for savers. The interest hike also comes after two Bank of England rate rises totalling 0.4 percentage points since its first issue.
Economic Secretary to the Treasury, John Glen, said: “I am pleased that savers across the UK will have the chance to invest in this second issue of Green Savings Bonds at a new rate, one that reflects upward movement across the wider fixed term market.”
Ian Ackerley, NS&I’s chief executive, agreed average rates among fixed term products have increased, along with the bank base rate.
“This new issue means that savers can save at a new competitive rate whilst also supporting the UK’s green agenda in six key areas to help make our environment greener, cleaner and more sustainable,” said Ackerley.
The minimum investment in one of these bonds is £100, with a maximum limit of £100,000 per person for each issue. Any capital invested is secured by HM Treasury’s backing, and there is an initial 30-day cooling off period before being locked in.
The new rate of 1.3 per cent still falls some way behind the most competitive three-year fixed rate of 1.86 per cent on the UK market, according to the most up-to-date Moneyfacts data.
Laura Suter, head of personal finance at AJ Bell, acknowledged the impact the central bank rate rises must have had on the government bond’s second issue, but ultimately put the doubled rate down to “a lacklustre response” the first time around.
“What’s more likely is that the initial launch, which at the time offered the same interest rate as an easy-access current account, went down like a lead balloon and NS&I had no choice but to raise the rate to draw in more money and reach its funding targets,” she said.
Suter highlighted how one group of savers who will be “disgruntled” are those who signed up to the initial Green Savings Bond, locked into earning 0.65 per cent for the next three years.
She worked out that someone who invested £10,000 in the first issue will make around £200 less in interest over the three year period, compared to someone who invests in the second. If they had £50,000 invested, that interest difference jumps to almost £1,000.