Savers will soon be able to put their money in government-guaranteed green bonds that will invest their hard-earned money in programs to fight climate change and improve the planet.
The savings company owned by the National Treasury Savings and Investments (NS&I) will soon launch a green savings bond.
How it works is that anyone over the age of 16 can put between £ 100 and £ 100,000 into the deal, which locks your money in for three years.
During this time, your money will be invested in environmental projects, and in the end, you will get it back in full – with interest.
The idea is that savers are helping the planet and making some money, the country is tackling climate change, and the government is getting lots of money in funding. In theory, this is a win-win situation.
But the government has yet to reveal a few key things – when the bond will launch and what it pays.
The latter is crucial for savers. If the bond is zero-rated, few other than the very eco-friendly can afford to be interested.
We also don’t know if the transactions will earn interest all at once at the end of the three-year term or at the end of each year.
There is also no word on what if you have an emergency and need your money quickly before the end of the three years.
Some bond companies allow it, some don’t, and some charge a fee.
The bonds will be sold by NS&I, the Treasury backed lender best known for its Premium bond offers.
The green savings bond was the first announced in the 2021 budget , when the chancellor Rishi Sunak said it would go on sale this summer.
It is intended to raise billions of pounds for wind and hydrogen energy projects. The goal is to create jobs and help the country produce zero carbon emissions by 2050.
NS&I is by far the largest savings company in the country. Savers love it because their money is extremely safe and 100% government backed.
How much is he likely to pay?
NS&I has never been known to pay the best rates on the market, except by accident.
In fact, he is legally obligated not to do so and must keep a delicate balance with what he pays savers.
It can’t pay enough to bankrupt the banks, but it can’t pay so little that no one is using it.
In practice, this means that he tends to pay rates which are at best around 70-80% of the best available rates for comparable offers.
An NS&I statement said: “Green Savings Bonds will help fund government green spending projects designed to tackle climate change and make the environment greener and more sustainable.”
The best three-year bond yields 1.26%, from Vanquis Bank.
But the bigger picture is that inflation is currently 2.1% , and some Bank of England economists believe it could reach 4% by the end of the year.
If the cost of inflation is higher than the interest rate you can get on your savings transactions, the value of your money loses purchasing power.
For the moment, no new savings offer is yielding 2.1%, let alone 4%.
So if green savings bonds don’t pay a decent rate, many are likely to put their green principles aside and settle for the best deals.
But green savings and investing have become a major draw for many of us.
Even Prince Charles encouraged pension funds – which rely on trillions of pounds of our money – to spend that money on green causes until it gets paid to us at retirement.
How to invest ethically
If you have money set aside that you want to save or invest and at the same time want to help the environment, there are several ways to do it.
The Green Savings Bond seems like the easiest way to save – and means you won’t lose any of your money, which is a risk to the investment.
If you want to invest, you can start with a smartphone app that lets you choose green investment options.
You don’t need to know anything about the investment to do this, and the app does most of the work for you.
But it’s worth pointing out that the value of your investments may go up or down, and apps also charge an annual fee.
Two good ones to check are nutmeg and plum. These allow you to create an ISA for stocks and stocks, which means that the money you earn is not taxed.
They work by allowing you to invest in a pre-selected basket of ethical companies.
However, all of our ethics are different, and what is ethical for you may not be ethical for someone else. If this is of concern to you, be sure to do your homework on what you are buying.
For example, most pre-screened “ethical” investment baskets will exclude arms manufacturers, but could include tobacco, oil, and animal husbandry.