NS&I increases green bonds interest rate to 5.7%

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National Savings & Investments has raised the interest rate on its three-year Green Savings Bond to 5.7 per cent in a boost to UK efforts to encourage investment in environmental projects.

The state-backed operator on Tuesday said it would increase the rate from 4.2 per cent — an increase of a full 1.5 percentage points on a product that started life on just 0.65 per cent.

“Green Bonds haven’t flourished quite the way that the government may have wanted. It’s going to be crossing its fingers that this is the enrichment it needs to get the product to blossom,” said Mark Hicks, head of savings at platform Hargreaves Lansdown.

The bond, originally announced in 2021 by then-chancellor Rishi Sunak, is geared towards investments in renewable energy, clean transportation and other schemes supporting the government’s climate targets.

“This is a great opportunity for savers who want to see a guaranteed return on their investment,” said Dax Harkins, NS&I chief executive. He said the bonds were particularly advantageous for savers looking to make climate-focused investments.

The offer is also an opportunity for those looking to lock in higher rates ahead of possible future cuts by the Bank of England, whose moves set the tone for the whole market.

The central bank raised rates to 5.25 per cent at the beginning of August. Governor Andrew Bailey suggested that rates were nearing their peak but were expected to remain at elevated levels as officials grappled with above-target inflation.

NS&I’s decision to raise rates to 4.2 per cent in February this year proved attractive to investors with about £415mn invested since, bringing the total invested since the bonds launched in October 2021 to £915mn.

The provider has also boosted other rates as it aims to deliver an increased fundraising target set by government. It increased the prize fund on Premium Bonds to 4.65 per cent this month and in July increased rates on one and two-year Guaranteed Growth Bonds to 5 per cent and 5.1 per cent, respectively.

However, commercial competitors are still presenting depositors with better deals, especially newcomer banks offering higher rates of around 6 per cent on a three-year fixed-savings product, according to data provider Moneyfacts.

Some also pay out interest on an annual basis, rather than at the end of a fixed period. This means savers are able to spread out interest payments against their £1,000 annual personal savings allowance, unlike NS&I’s bonds which are paid out at the end of the fixed period.

Savers who bought bonds at the lower 4.2 per cent rate within the past month may still have time to switch out in favour of better rates, as NS&I’s Green Savings Bonds have a 30-day cooling off period.