Everything you need to know about NS&I’s green savings bonds

Key takeaways

• Green savings bonds are backed by the UK government

• Green bonds don’t pay the highest rates of interest, but your money will be invested in green projects to help the planet

• You can open a green savings bond with a minimum deposit of £100

• You can’t access your money within the three year term of the bond

What are NS&I’s green savings bonds?

National Savings and Investments (NS&I) is the government’s savings arm. It provides a range of savings and investment accounts, which are backed by the UK government. These include premium bonds and ISAs, and it also offers green savings bonds.

These bonds were launched in October 2021 and when you open one, the money you put in is used by the government to fund projects which will help to make a positive impact on the environment.

These projects can include anything from building a new wind farm to improving the UK’s electric vehicle network. They are all to do with lowering greenhouse gasses and reaching the government’s 2060 target of net zero for carbon emissions.

How do green savings bonds work?

Green savings bonds work just like standard fixed rate accounts. The only difference is where the money you invest goes. You can:

• Open an online account with a deposit of £100

• Put away up to £100,000

• Earn a fixed interest rate of 2.95% interest for three years

Remember, you cannot withdraw your funds until the bond term ends, and there's a 30-day cooling-off period.

Can I open a green savings bond?

If you're considering a green savings bond, here's what you need to know about eligibility:

• You must be a UK resident aged 16 or over

• You need a British bank account that accepts BACS payments

• A minimum deposit of £100 is required to open an account

• It is an online account – so you can’t open it in a branch, by post or by telephone

How much interest does a green savings bond pay?

The amount of interest you earn is fixed with a green savings bond. This rate has changed since they were first introduced in 2021.

Right now the rate is 2.95% AER, which is significantly lower than other accounts on the market. You also need to lock your money away and settle for this rate for three years, during the fixed rate period.

This means you are locking in a lower interest rate than other accounts pay, for the benefit of putting your money into environmentally friendly projects.

Where does money invested in a green savings bond go?

The money raised through green savings bonds is used by the UK government to fund green projects. These include:

• Cleaner transport systems

• Renewable energy sources

• Pollution prevention measures

• Enhancing energy efficiency, such as in hospitals

• Protecting natural resources

• Climate change adaptation, like constructing flood defences

How much tax do you pay with a green savings bond?

The interest earned on green savings bonds is not tax-free like an ISA, but that doesn't automatically mean you'll owe tax on it.

For many savers, the personal savings allowance (PSA) ensures that they won't pay any tax on their savings interest. Your tax liability will depend on your tax status, with basic rate taxpayers enjoying a £1,000 tax-free interest allowance per tax year.

Can you take your money out of a green savings bond?

It's important to note that NS&I green savings bonds do not permit early withdrawals.

However, investors are given a 30-day grace period after the first open an account whereby they can cancel the investment and receive a full refund, including any interest earned during that time.

The pros and cons of green savings bonds

Before opening an account, here are some of the advantages and disadvantages:

Pros

• Contribute to environmental sustainability

• Receive a guaranteed return of interest

• Your savings are backed by the UK government

Cons

• There are higher rates of interest available in other savings accounts

• Your money is tied up for a three-year period

• High earners with substantial savings might face a tax bill on their interest

The best alternatives to green savings bonds

If green savings bonds don't quite match your financial goals, consider these alternatives:

• Green savings accounts: Offered by banks and building societies, these accounts focus on ethical investments and often provide easy access without a fixed term.

• Ethical stocks and shares ISAs: These ISAs invest in ethical companies and offer tax-free returns on investments up to £20,000 per tax year in the UK. However, as your money is invested in the stock market, there are no guarantees of a return.

Useful guides

For those keen on exploring further, the following guides provide valuable insights:

• NS&I guide

• Savings bonds explained

• What is the personal savings allowance?

Compare savings accounts with MoneySuperMarket

If you’re looking for a new savings account, then MoneySuperMarket can help. We’ll show you a range of accounts from leading providers which you can filter by easy access, fixed rate or ISAs.

You can see at-a-glance the interest rate, minimum and maximum deposits, any notice period, or introductory offers available. Once you’ve made your choice, simply click through to the provider and open your account within minutes.