Written by: Sarah Davidson
NS&I more than doubled the rate on its green savings bonds from 1.3% to 3% and 0.65% when they launched last October.
It still lags the most competitive three-year bond in the market, with best rates currently jostling below 3.5%.
This green bond issue will be fixed for three years, with a minimum investment of £100 and a maximum of £100,000.
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said the higher rate “gives the green light to new savers” who want to tie up their money for three years and prioritize green benchmarks above the rate.
“Those who locked themselves in last October for a miserable 0.65% will, however, feel green around the gills,” she said. “And anyone looking at the new rate has to wonder if they’ll feel the same a year from now.”
Three years is too long?
Coles urged savers to think twice before locking themselves in for three years, especially when inflation tops 10% and the Bank of England has indicated it will raise interest rates again at least twice more this year.
“Three years may not be the most rewarding time to set,” she warned. “Right now you don’t get a huge premium for fixing longer – because the swap market influences the rates offered, and the swap market thinks rates will go up in the short term and fall back later.
“As a result, the best two- and three-year accounts both pay just under 3.5%, while the best one-year accounts pay over 3.2%. You have to think very carefully if it is really worth repairing longer in exchange for a lower rate. With so much uncertainty hanging over all of us, you might appreciate the opportunity to mend for a shorter time, then take stock and decide what’s the best thing to do with your money at that time.