National Savings & Investments has today launched its green savings bonds, but the headline rate falls well short of the best savings products on the market.
There has been huge interest from savers in the NS&I Green Bond – which will not only help fund environmentally-friendly projects but also provides the security of Government backing – since it was first announced by Chancellor Rishi Sunak last year.
And NS&I has finally released full details of the product this morning, which is a three-year fixed-rate bond paying a rate of 0.65%.
That's not exactly a rate to get excited by.
To put that in context, the best three-year savings product on the market from JN Bank currently pays a rate of 1.81%.
If you invest £10,000 in that account you'll earn £543 in interest over the term, but with the NS&I Green Bond you'll only get £195.
In other words, you can earn almost three times as much interest with a top savings account.
Throw in the fact that inflation is currently at 3.1% (and expected to soar higher still in the coming months) and it's not hard to see why demand for the product might be limited despite the big build-up.
“It’s such a disappointment for savers who were hoping for a competitive rate that meant they could do the right thing for the planet and their pocket at the same time," said Sarah Coles, senior personal finance analyst at Hargreaves Lansdown.
"Instead, NS&I is relying on savers who are willing to pay a price for going green with their savings.
"If you came across an account offering 0.65% over three years in any other context, you wouldn’t give it a second glance.
"To make matters worse, there’s also a reasonable chance that interest rates will rise over the next three years, so a year or so down the track, 0.65% is likely to look even less rewarding by comparison."
NS&I Green Bond: all you need to know
The green savings bonds will be used to help finance projects to tackle climate change by focusing on renewable energy and ‘clean’ transport, as well as creating ‘green’ jobs across the UK.
NS&I said these bonds will also help the UK achieve its goal of net zero carbon emissions by 2050.
As we mentioned earlier, you'll get a rate of 0.65% and it will be fixed for a term of three years.
The bond isn't tax-free like other popular NS&I products, but most savers are unlikely to pay tax thanks to the Personal Savings Allowance, which allows people to earn up to £1,000 in interest tax-free depending on their Income Tax bracket.
On the subject of tax, it's worth noting that, while interest is accrued daily and paid annually, the total amount of interest you earn is paid out in full at the end of the three years.
Even at 0.65%, the fact you're getting three years' worth of interest paid out in one financial year could push someone's total returns over the threshold and land them with an unwanted tax bill.
We wrote earlier this year about how NS&I Guaranteed Growth Bond savers faced just that problem, so be sure to factor this into your calculations if you are interested in applying.
Finally, the minimum amount each person can deposit is £100, with the upper limit set at £100,000.
NS&I Green Bond key facts at a glance
Term: three years
Deposit limits: minimum £100, maximum £100,000
Is it taxable? Yes
loveMONEY verdict: let down for savers (and the environment)
The NS&I Green Bond feels like a missed opportunity to us at loveMONEY.
There's been huge public interest in the Government's flagship eco-savings product over the last year and, had it offered a rate that was even remotely competitive, it would have benefitted both savers and green projects.
But by launching with a rate that's barely a third of the leading savings rate and a fifth of inflation (as calculated by CPI), the amount of savers cash being pumped into the project is likely to be limited.
As this is by far the most popular green savings account, it also creates the impression with people who might not have come across them before that they are not worth looking into.
We understand that NS&I has to be careful not to set rates too high and thus attract too much funding given its savings targets.
We also know that ethical savings products are generally less generous than the table-topping savings accounts – it's not all about profit after all – but this feels to us like a sacrifice the vast majority of savers will be unwilling, or simply unable, to accept.
There isn't even the promise of tax-free returns to tempt Higher or Additional Tax ratepayers into investing.
We might be well wide of the mark, but our view is the Green Bond is unlikely to go down well with the public and most savers will look elsewhere.
What do you think of the Green Bonds? Will you be buying any? Share your thoughts in the comments section below.