NS&I have announced the arrival of a new savings bond that will pay a decent 4.2% gross a year if you hand your money over to them for three whole years. Oh, and your cash will be used to finance some of the government’s ‘green’ projects that aim to get the UK to a so-called net-zero position by 2050 (one where we are not adding any new greenhouse gas to the atmosphere). So, is this a good deal? Well, that depends on who you are and what interests you.
Who might be interested in a fixed three-year saving bond?
You might be interested if you have cash savings that you know you won’t need for three years and that you don’t want to take any risk with. In short, savers who want or need certainty about how much their money will be worth in three years’ time but who have other pots of cash in easy-access accounts for regular spending and emergencies.
One thing to note is that there is not a great deal of difference in the market rates being offered for tying your money up for three years versus five years. This tells us that no one knows where interest rates will be in three or more years’ time, and you might be faced with the fact that, while your money is bound up and out of reach until 2026, better deals could sneak onto the market.
Who might be interested in green savings from the government?
You might be interested if you like the idea that your money will be used to fund things like zero-emissions buses, wind power and hydrogen research, carbon capture and storage (that is taking existing carbon out of the air and putting it somewhere where it can do no harm), making public buildings like schools and hospitals greener, tree planting and conservation, flood defences…and the like.
Who might be interested in this particular NS&I Bond?
So, if you think this type of bond is suitable for you based on the above, how does this NS&I option stand up? First, let’s look at the financial side of things. If, this is you…
- You are looking for a place to stash your spare cash for three years;
- You have between £100 and £100,000 that you want to tie up in a place that is as close as you can get to risk-free in the UK; and
- You are happy to do your banking online,
…then this may be a contender, irrespective of its green credentials. For those who like to get the very best rate possible, a quick look at a reputable comparison website will show you how the gross 4.2% (AER) rate fares in the wider market. At the time of writing, the best rate I could find was a little higher at 4.3% gross (AER). For context, on a balance of £10,000, this higher rate would take your gross AER interest earned from £420 a year with NS&I to £430 a year.
A point worth noting in favour of saving with NS&I is that your money is 100% guaranteed by HM Treasury. You might get a better rate with a different provider, but you need to make sure they are covered by FSCS Protection, and you should be aware that, if the account is in one person’s name rather than joint names, you are only covered up to £85,000 if the provider goes bust. So, if you are looking for a single account with the maximum cash of £100,000, then you get better protection with NS&I.
However, if you were hoping that there might be some tax advantage to this, you’ll be disappointed. The interest earned may be taxable depending on the total amount of interest you earned and what rate of tax you pay – however, it might be within your personal savings allowance in any of the given tax years. You can’t get your hands on the interest until the end of year three, but it is added to your account at the end of each year.
Now let’s look at the green side of things. If the idea of helping the UK reach its net-zero target is one you want to support, then this represents a low-hassle way of doing that. If your principles are very pure, then you should note that the exact money that savers put in is not specifically ringfenced for these green projects, but rather goes into the general government pot with an equivalent amount being ‘allocated’ in the right direction. That said, there is some transparency in a publication issued by the Treasury called the UK Green Financing Programme Allocation Report, 2021-22 that lists all the government projects that are eligible for your green pounds. You can find the report at the following link (note it is due to be updated this year): UK Green Financing – Allocation Report (publishing.service.gov.uk)
Still not sure?
If you still feel baffled by your savings needs and options – or your preference for greener, sustainable places to put your money – have a chat with your adviser or bring it up at your next annual review. We’re always happy to talk.
Carole Haswell DipPFS
Financial Planner at Talking Finances
Talking Finances is a trading name of Talking Finances Ltd. Talking Finances Ltd is an appointed representative of Parallel Lines The Advisor Collective Ltd, No.2 Sopwith Court, Slough Road, Datchet, Berks SL3 9AU, which is authorised and regulated by the Financial Conduct Authority. FCA Registration No. 967228
This article represents the personal opinion of Carole Haswell only and does not represent any opinion of Parallel Lines the Advisor Collective Ltd. Financial decisions should not be made on the basis of this article.
- All content is based on my understanding of current legislation, which is subject to change.
- This blog is for general information only and does not constitute advice.
