Rishi Sunak introduced National Savings & Investment (NS&I) Green Savings Bonds in his March Budget, calling them a “world’s first”.
Designed to help provide a secure way to save, funds held in Green Bonds will be used to help finance green spending projects, increase sustainability, and help the UK to achieve its target of net-zero carbon emissions by 2050.
Due to arrive in summer 2021, here’s what we know about the Green Savings Bonds so far.
Government Green Bonds follow a bumper year for ESG investing
Back in February, we asked What will 2021 bring for ESG investing? and spoke about the increased inflows and impressive returns of ESG funds during the coronavirus pandemic.
The Investment Association reports that the amount paid into ESG funds quadrupled in the first three-quarters of 2020 compared to the previous year. And these funds performed well, too. According to figures published by FTAdviser, high ESG-rating rates outperformed lower-rated funds every month between January and September 2020, apart from one.
The shift to ESG investment aligns with changing attitudes to sustainability among investors. This is Money reports that 65% of UK investors now see responsible investing as a priority, where “responsible” investing includes sustainable, ethical, impact, and philanthropic investment.
That leaves just 35% of respondents who see themselves as “traditional” investors.
With attitudes shifting, and the UK committed to making changes in line with the Paris Agreement on climate change, the government has got on board.
Green Savings Bonds: What we know so far
1. Green Bonds are a “world first”
Announced in the chancellor’s March Budget, Rishi Sunak described the bonds as “the world’s first sovereign green savings bond for retail investors”. He also pledged to issue at least £15 billion in green bonds to help the government finance the UK’s transition to net-zero carbon emissions by 2050.
2. Your money will be safe
The bonds will only be available online, and only through the NS&I website.
NS&I was introduced in 1861 as a state-backed way to encourage saving. By purchasing Green Savings Bonds – and any other NS&I product including Premium Bonds – you are effectively lending money to the government
With the backing of HM Treasury, you are guaranteed not to lose your investment and can be sure that your money is safe.
3. The term is 3 years with interest added at the end of the term
The latest announcements from NS&I have provided more detail about the type of bond on offer.
Green Savings Bonds will be three-year, fixed-rate bonds. Once you take out a Green Bond, the interest rate you receive won’t change throughout the three-year term, but neither will you be able to access your funds during that time.
After an initial 30-day cooling-off period, your money will be tied up for three years. You’ll need to think carefully about how much you invest and whether you might need the invested funds sooner than you can access them.
4. Age and deposit limits apply
The bonds are available to anyone over the age of 16 who has a UK bank account.
The minimum deposit is just £100, while the maximum you can invest is £100,000.
5. Interest will be added annually but only paid on maturity
Fixed interest will accrue daily but be added annually and only pay out when the bond matures (at the end of its three-year term). This means you will effectively receive three years’ interest in one go, which could lead to a tax liability if you exceed the personal savings allowance.
For the 2021/22 tax year, basic rate taxpayers can receive tax-free interest up to £1,000. The allowance is £500 for higher-rate taxpayers, while those taxed at the additional-rate do not receive any allowance.
6. The interest rate is still unknown
While the actual rate payable is still unknown, it is likely to be reflective of the wider market. The government too will be conscious of the amount they need to raise to fund the green projects on their agenda, so the rate will need to be competitive.
7. NS&I Green Savings Bonds launch later this year
In the chancellor’s Budget announcement, the Green Savings Bond was confirmed for launch this summer, so watch this space!
Get in touch
If you would like to invest in bonds while helping the UK to meet its commitments on sustainability and carbon emissions, you might consider a Green Savings Bond. If you’d like to discuss this option, or other any aspect of your financial planning, please get in touch and find out how our team of expert financial planners can help you.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.