New NS&I ‘green bonds’ likely won’t pay savers best buy rates

The Treasury’s much anticipated ‘green savings bonds’ could be a major disappointment for rate-starved savers, according to experts.

Chancellor Rishi Sunak announced in the Budget that everyday Britons would be able to help fund the country’s green recovery from the pandemic through bonds offered by National Savings & Investments.

Details remain thin on the ground beyond the fact the bonds will be launched this summer, but figures from the Office for Budget Responsibility forecast NS&I is set to raise just £6billion from savers in 2021-22, down from £20billion this financial year.

NS&I will launch new ‘green savings bonds’ this summer, the Treasury said today 

And even that latest forecast represents a drop on the £35billion NS&I was supposed to raise in 2020-21, after £13billion was pulled out of the Treasury-backed bank between October and January after cuts to its best buy rates.

This fundraising target covers all existing NS&I accounts, including Britain’s best-loved savings product, Premium Bonds, but does not include the estimated amount that will be raised from the new green bonds due to launch in the summer.

However, with the Treasury looking to raise just £6billion from NS&I deposits and the bank cutting rates to as low as 0.01 per cent last year, it suggests it is not necessarily in the mood to raise billions of pounds from savers at market-leading rates.

And even if the bonds raised £6billion, doubling NS&I’s take next year, this would represent less than half the £13billion raised by the sale of over-65 Guaranteed Growth Bonds, or Pensioner Bonds, in January 2015.

‘Given these estimates, it is unlikely that these “green savings bonds” will be around for very long or be particularly competitive’, Anna Bowes, co-founder of the analyst Savings Champion, told This is Money.

Savers will likely be hoping for a repeat of 2015, or a comparable fundraise to the at least £15billion the Government hopes to ‘green gilts’, or Government Bonds in 2021-22.

But any hope that the Chancellor will launch a repeat of the ‘War Bonds’ which raised massive amounts of money during World War I and World War II seems to have been dashed by the OBR’s forecasts.

Campaigners and politicians, including Labour leader Sir Keir Starmer, had previously called for the Treasury to fund Britain’s economic recovery after the coronavirus pandemic using the nation’s £143.5billion lockdown cash pile.

Treasury-backed National Savings & Investments will raise just £6bn for the Government in 2021-22 down from £20bn in 2020-21

Treasury-backed National Savings & Investments will raise just £6bn for the Government in 2021-22 down from £20bn in 2020-21

This is the amount of money savers have stashed away between March 2020 and January 2021, according to the Bank of England. 

But James Blower, a savings analyst and founder of The Savings Guru, previously told This is Money he did not expect the new Treasury bonds to pay best buy rates.

‘I wonder whether green bonds are being used, rather than recovery bonds, to pull at our emotions and hope that people will be more likely to back them with a lower rate of return.

A record $269.5billion was raised through 'green bonds' last year by companies and governments, with energy projects the most popular use for the money raised

A record $269.5billion was raised through ‘green bonds’ last year by companies and governments, with energy projects the most popular use for the money raised

‘I wouldn’t be surprised if they will be offered at more normal market rates, rather than last year’s income bonds, and “pensioner bonds” in 2015, which were above best buys.’

After the release of the OBR’s figures, he said: ‘This suggests the “green savings bond” planned for summer 2021 will have a low issuance and/or be priced below the best buys in the market.’

NS&I pays as little as 0.01 per cent interest on some of its accounts at the moment, down from a market-leading 1.15 per cent last year.

And while the bonds announced in today’s Budget will use everyday savers’ money to fund renewable energy and clean transportation projects to ‘help the UK build back greener’, the Treasury seemingly plans to raise most of the money from the markets.

It announced it would raise at least £15billion in ‘green gilts’, or Government Bonds in 2021-22, more than double NS&I’s net financing target for the year, with the first bond issuance in the summer. 

The framework stating what projects will be funded by these gilts will be published in June, the Budget said.

55-year-old Sam Daws is one investor who would be keen on the new savings bonds

55-year-old Sam Daws is one investor who would be keen on the new savings bonds

Meanwhile the Government expects to borrow £302.3billion in 2021-22, according to the OBR’s forecast, of which just 1.98 per cent will come from everyday savers.

The news potentially comes as a disappointment to environmentally conscious savers hoping to earn a return by putting their money to good use.

Sam Daws, 55, from Oxford, told This is Money before the Budget: ‘In the past people invested in “War Bonds” out of a sense of civic duty.

‘My hope is that investing in climate and nature solutions will become the new patriotism for those who love their country, for it is as crucial for future generations, as the wars our grandparents fought in the past.’

And while he said he was ‘encouraged’ by the news confirming the launch of the green savings bonds, he said anything less than last year’s £35billion fundraise by NS&I would make them a ‘cosmetic gimmick.’

He said: ‘A return to last year’s target would be the very minimum needed, with a significant proportion of this targeted on green savings.’

The consultant has invested in green projects for nearly 20 years both in the UK and abroad, including solar panel projects in Africa through the investment platform Ethex.

He said green energy investing was a way of ‘undoing some of the climate damage his travel had caused’ after previously flying a lot for his work with the United Nations.

The summer launch date for the bonds is likely to give NS&I time to recover from a 2020 which saw vast sums of money deposited and then subsequently withdrawn, and saw it struggle with numerous service meltdowns, including a power outage only last week.

The Budget also contained little other news for savers, with the Isa and Junior Isa tax-free allowances kept at their current levels of £20,000 and £9,000, respectively, and no change to the Personal Savings Allowance, which lets basic rate taxpayers earn up to £1,000 interest tax-free.

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