Whether you’re already asking yourself, “Should I invest in green savings bonds?”, or you simply want to know a little more about this asset class, we’re here to help. Today we’re looking at the basics behind the brand new Green Savings Bonds in the UK, and everything you need to know to make a smart investment decision.
What are green savings bonds?
Green savings bonds are the new brainchild of the National Savings and Investments. For those unfamiliar with the entity, it’s the amalgamation of what was the Post Office Savings Bank and the National Savings.
More importantly, it’s a state-owned savings bank that can act both as a non-ministerial government department and an agent of the treasury. The aim of the NS&I is to act as a vehicle to encourage savings among UK citizens, to be used to help address government deficits. They offer a wide range of savings products, of which the Green Savings Bonds are one of the newest, classified as a socially responsible investing opportunity.
100% from Her Majesty’s Treasury, green savings bonds are a safe and conservative, investment vehicle. While this was once a heavy drawcard for them, you should remember that all similar investment vehicles below £85,000 now have similar (FSCS) protection in the UK.
A new savings vehicle
The Green Savings Bond is a new product launched in the Summer of 2021. It encourages UK savers to support a greener economy, through a focus on environmentally-friendly projects. It’s part of the UK Government’s continuing dedication to creating a zero-carbon emission environment by 2050.
What sort of projects are covered? Think of items like fostering the development of electric vehicles, investment in solar- and wind-farm technologies, and even helping to redevelop buildings to be more energy-efficient.
These are, traditionally, seen as fairly risky and ‘niche’ investments. However, with Treasury backing, your money is safe. A Green Savings Bond works like a normal savings account. You will open it, and receive a fixed interest rate in return for ‘loaning’ the government the money for green infrastructure products. When the bond’s term ends, you will receive your lump-sum savings and the interest promised.
It’s a nice way to get some exposure to the rising green finance industry, especially if climate change is a cause you’re keen to support, and invest your money in a conservative investment vehicle with government backing.
What is the Green Savings Bond interest rate in the UK?
So far, this key information is still missing. It is hoped, however, that the Green Bonds will be offering a market-leading rate. Investors can lock in between £100 and £100,000 over the three year period. Do remember that you always have a 30-day ‘cooling-off’ period on the purchase of a financial vehicle like this in the UK. £15Bn will be offered initially through this investment vehicle.
Advantages of Green Savings Bonds in the UK
- These bonds are designed to encourage people to save money while also supporting environmental projects. When you purchase a Green Savings Bond, you are lending money to the government. The government then uses this money to invest in green infrastructure projects, such as renewable energy or energy efficiency.
- One of the main advantages of green savings bonds is that they offer a fixed rate of return. This means that investors know exactly how much interest they will earn over the life of the bond, which can be helpful in planning for the future.
- There is no risk of losing your initial capital investment. Green bonds are often considered to be very low-risk investments, as they are backed by the full faith and credit of the UK treasury. They have the FSCS protection as well.
Disadvantages of Green Savings Bonds in the UK
- One of the primary disadvantages of green savings bonds is that they typically offer lower returns than other types of financial products.
- It is a long-term investment with minimum 3 years maturity. It ties up large sums of money for a fixed period of time, which can limit an investor’s liquidity.
- High earners and those with a high level of savings will be taxed on the interest from these bonds.
How to buy Green Bonds in the UK?
While we have to wait until later this year for the interest rate to be confirmed, the current average for this style of three-year bonds is 0.76% a year, with the market leader offering 1.26%. Savers over the age of 16 can purchase the bond, they will be managed online, and you can buy them individually or jointly. Interest, whatever the rate will be, is to be paid on the anniversary of the account opening. Interest will, it must be noted, be taxable and count to your Personal Savings Allowance if you are in that category of the saver.
The bonds will be available for purchase through their website- nsandi.com- as of the end of 2021. There’s already a limited page you can visit regarding them. They will be a fully online product. Also, NS&I is best known for the highly popular Premium Bond series.
Should I invest in Green Energy Bond?
As with all investment vehicles, this depends heavily on you and your overall investment strategy. Bonds are a very safe investment type. This means that you will never make your fortune from the interest you receive but are highly unlikely to lose money, either. This makes it a good vehicle for older investors who cannot carry high-risk investments like stocks but want to continue to grow their wealth.
Bonds can also make up a solid proportion of the young or middle-aged investor’s portfolio, although these two demographics should favour higher-risk investments to kick-start portfolio growth while the benefits of time and compound interest are both on their side. It could also act as a good ‘parking’ site for a portion of your emergency fund, or money you are saving towards a specific medium-term goal.
Do remember that you will be locked in for the full three years, however, so plan this carefully.
While this form of bond is very new in the UK, and being hyped as a ‘world-first’, in reality, Germany and Sweden already have these products on offer for investors. There are also some very similar products on offer in the UK already. This includes the Ecology Building Society, Triodos, Gatehouse Bank, Oxbury Bank, and Tandem. If you are interested in making a difference regarding climate change, or if greener investment vehicles are important to you, this could also add to the appeal.
In the end, you need to decide if this investment product fits well into your overall investment portfolio and the direction you are heading with it. It will be a good match for conservative investors looking for some diversity, younger investors who want to diversify into some safe stock alternatives, older investors who still want to grow their money, and anyone who wants to support a cause that aligns with their ethics.
We will be sure to keep you updated as more details about Green Savings Bonds are revealed to the public, so don’t forget to check back!