At the time of the announcement, as part of the Spring 2021 budget, Her Majesty’s Treasury said further details were to be announced in the coming months. The products are expected to go on sale later in 2021.
Ahead of the spring budget, Chancellor Rishi Sunak said: âThe UK is a world leader in the fight against climate change, with a clear goal of reaching net zero by 2050 and a ten point plan to create green jobs as we move towards a greener future. .
âIn a world first, we are launching a new Green Savings Bond that will give people across the UK the opportunity to contribute to the collective effort to tackle climate change.
“And we are also launching new competitions that will unlock innovation in renewable energy and help us develop the cutting edge technology we need to achieve 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 government-backed green savings bonds.
âNS&I Green Bonds will potentially be the holy grail for savers who want to do their part but don’t want to put their money at risk, as these bonds will be guaranteed by the Treasury,â she said.
âResearch suggests that the majority of UK savers want their investments to consider people and the planet alongside profits.
âThe retirement and green investment movement is growing and although there are already green savings accounts in the market, the introduction of a green product by NS&I, the Kingdom’s most popular savings institution – United, will make green options really mainstream.
âBut if green means going for savers, it will all depend on the prices offered.
âThey need to be high enough to get people to embrace green options, but not so high that NS&I is inundated.
âAs with other savings accounts that currently earn much less than inflation, green bonds are unlikely to give savers a higher real rate of return than rising prices.
“The hope is that they will at least compete with the current best buys.”
Laith Khalaf, financial analyst at AJ Bell, commented: âThe new NS&I bond that the Chancellor plans will offer savers the option of a green house for their money, but its success will likely be determined by the interest rate offered.
âSavers showed they were ready to vote with their feet when NS&I cut interest rates on a series of accounts last November, and if the Green Savings Bond is offering a paltry interest rate, it might not generate public demand.
“On the other hand, 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 a government borrowing under. another name.
“Savers will not invest directly in renewable energy projects, but rather lend money to the government to do so, in exchange for interest on their money.”
Mr. Khalaf also shared his thoughts on the length of the bond term.
âThe long-term nature of financing green energy projects also means that the treasury will have to think about how long the new savings bonds will keep savers’ money locked away,â he said.
âPresumably the government won’t want money coming in and going out on a regular basis, so an instant access account doesn’t seem feasible, and a product that locks in savings for, say, five years seems more appropriate.
“The more the government asks savers to keep their money in the bond, the less likely they are to be taken without offering a very large interest tranche.”
He added, âSunak is between a rock and a hard place here. If he raises green bond rates, he will be criticized for spending money unnecessarily when government borrowing is already very high.
“If the Chancellor opts for fiscal prudence, the ability to save in a way that helps green causes, as well as the safety and brand of NS&I, may be able to overcome any quibble over rates. of interest offered.
“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, especially if it’s stuck for longer. term.”