NS&I (National Savings and Investments) has again cut the rate on its three-year fixed-rate Green Savings Bond. The rate savers can earn has dropped from 3.95% down to 2.95%. This follows a significant cut from 5.7% down to 3.95% in November 2023. The 5.7% rate had been in place since August 2023, which means it has been almost halved from its peak. In contrast, the best three year fixed-rate bond available elsewhere is 4.6%. You can even earn over 5% interest with a shorter one-year fixed-rate bond.
Some experts have criticised the move as, while the expected return on savings is going down across the board in the face of anticipated base rate cuts this year, the Green Savings Bond has a unique position and importance versus competitors.
What is the Green Savings Bond?
The Green Savings Bond is a fixed-rate savings account that requires you to lock away your savings for three years while it grows at a fixed rate of interest. It was first offered by NS&I in 2021 as part of a government’s Green Financing Framework, an initiative set up to raise funds for environmentally-friendly projects and research. These can include greener transport programmes, switching to renewable energy, climate change projects, energy efficiency research, conserving natural resources and cutting pollution. All money invested in NS&I is passed onto the treasury and forms part of regular government spending, so the exact area the money is invested in is ultimately decided by the government.
Along with this eco-friendly selling point, the Green Savings Bond is excluded from a key NS&I rule. Usually, NS&I must follow government rules on how much money it can get from savers, but the Green Savings Bond is not constrained by the standard fundraising limits. This arguably makes the cuts more surprising, as some products – including the ever-popular NS&I Premium Bonds – were cut to avoid too much money being invested. The Green Savings Bond should not have this problem, so it is more difficult to explain the drastic rate changes.
How much can you earn with a Green Savings Bond?
Taking out a Green Savings Bond today means forgoing a greater amount of interest that could be earned elsewhere in order to support green initiatives. For example, someone saving £10,000 would earn around £924.16 before tax over the bond’s three year term, but could earn around £1,476.73 with a different provider. That is a difference of £552.57. What's more, the best two-year fixed-rate bond currently pays 5.00% and would return £1,049.41 on £10,000 saved. This means that you could earn more in two years than you would in three years with the Green Savings Bond.
Unlike Premium Bonds, what you earn is not tax free and will count towards your taxable income when your bond matures. You can read more in our guide to paying tax on your savings interest. If you want to put your savings away tax free, take a look at our ‘Best Fixed Rate ISAs in the UK’ article. For more flexibility on when you can access your cash, check out our ‘Best Easy Access Accounts in the UK’ or ‘Best Easy Access Cash ISAs in the UK’ articles.
