Laura Suter, head of personal finance at AJ Bell, comments on NS&I’s Green Savings Bond rate rising once again:
“The interest on NS&I’s green savings bond has increased again, as the Government-backed provider attempts to keep up with the savings war in the fixed-rate market. The three-year bond will now pay 4.2% interest, a significant leap from the 3% it’s currently paying.
“The rate now is a far cry from the paltry 0.65% interest paid on the accounts when they were first launched almost 18 months ago. Customers who bought at launch will be frustrated that they are locked into that deal, with new customers able to get a far higher rate. Someone who put £5,000 into the bonds at launch will be earning just £32.50 a year in interest, compared to the £210 a year that a new customer will be getting now. If they had invested £20,000 that difference in interest jumps to more than £700 a year.
“The bond has an initial 30-day cooling off period, where people can get their money back, but once savers are past that point they can’t withdraw the cash for three years. Anyone who bought the old version of the bonds in the past 30 days could cancel their accounts and re-open a new one to benefit from the higher rate.
“While NS&I will rarely be the top rate in the market, it isn’t far off the market-leader for a three-year bond, which is paying 4.45% interest. Interestingly, the top rate on the market is also a green savings offering: Gatehouse Bank’s Woodland Saver, which plants a tree for every account opened. But savers are still sacrificing returns in order to have the backing of the UK Government, and it will be a personal decision on whether they think the lost interest is worth it.
“Savers in the Green Savings Bonds have seen their money funnelled into various Government ‘green’ projects since launch, with the largest spends being on renewing railway tracks, investing in flood and coastal erosion prevention, and funding for businesses and homes to install renewable heat systems.
“Three years is a long period to fix your savings for, and savers need to think about what might happen to interest rates during that time. Recent years have shown us it’s impossible to predict the direction of interest rates accurately over such a long period, but with the Bank of England still expected to hike interest rates this year, 2023 could bring further rate rises in the savings market. That means anyone who locks into a three-year account today will miss out on these rate increases this year, if they materialise. One option could be to hedge your bets and invest some of your savings in a fixed-rate deal and keep the rest in the top easy-access account to benefit from any future rate rises.”