NS&I ‘to make green options mainstream’ – Rishi Sunak ‘set to give savings bond update’

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At the time of the announcement, amid the 2021 Spring Budget, HM Treasury said further details were to be announced in the coming months. The products are set to go on sale later in 2021.

Ahead of the Spring Budget, the Chancellor Rishi Sunak said: “The UK is a global leader on tackling climate change, with a clear target to reach net zero by 2050 and a Ten Point Plan to create green jobs as we transition to a greener future.

“In a world first, we’re launching a new green savings bond which will give people across the UK the opportunity to contribute to the collective effort to tackle climate change.

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“And we’re also launching new competitions that will unlock innovation in renewable energy and help us develop the cutting-edge technology we need to reach net zero.”

So, what will green mean for savers?

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Becky O’Connor, Head of Pensions and Savings at interactive investor, shared her thoughts on the Government-backed green savings bonds.

“Green NS&I bonds will potentially be the Holy Grail for savers who want to do their bit but do not want to put their money at risk, as these bonds will be backed by the Treasury,” she said.

“Research suggests that the majority of UK savers want their investments to consider people and the planet alongside profits.

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“The green pension and investment movement is growing and while there are already some green savings accounts on the market, the introduction of a green product by NS&I, the UK’s most popular savings institution, will make green options truly mainstream.

“But whether green will mean go for savers will all come down to the rates on offer.

“They need to be high enough to tempt people to green options, but not so high that NS&I is deluged.

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“As with other savings accounts that currently pay far less than inflation, it’s unlikely that the green bonds will give savers a real rate of return that beats price rises.

“The hope is that they will at least compete with current best buys.”

Laith Khalaf, financial analyst at AJ Bell, commented: “The new NS&I bond the Chancellor is planning will give savers the option of a green home for their cash, but its success will likely be determined by the interest rate on offer.

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“Savers showed they’re willing to vote with their feet when NS&I cut interest rates across a swathe of accounts last November, and if the green savings bond offers a paltry rate of interest, it might fail to ignite demand from the public.

“On the flip side, if the interest rate is too high, it will raise questions about the cost to the taxpayer, because the green savings bond is ultimately just government borrowing by another name.

“Savers won’t be investing directly in renewable energy projects, rather they’ll be lending money to the government to do so, in return for interest on their money.”

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Mr Khalaf also shared his thoughts on how long the term of the bonds could last for.

“The long term nature of funding green energy projects also means the Treasury will need to give some thought to how long the new savings bonds will keep savers’ money locked up for,” he said.

“Presumably the government won’t want money flowing in and out regularly, so an instant access account doesn’t look feasible, and a product that locks up savings for say five years looks more appropriate.

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“The longer the government asks savers to keep their money in the bond, the less take-up they are likely to get without offering a seriously big slice of interest.”

He added: “Sunak is between a rock and a hard place here. If he hikes rates up for the green bond, he’ll face criticism for needlessly spending money when government borrowing is already sky high.

“If the Chancellor opts for fiscal prudence, it may be that the ability to save in a way that helps green causes, together with the security and brand of NS&I, is able to overcome any quibbles over the interest rates on offer.

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“But with rising inflation a clear and present danger to cash returns, consumers may well be picky about the interest rate they get on their money, particularly if it’s locked away for the longer term.”

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