NS&I Green Savings Bonds Rate Increase Outpaced by Competitors

National Savings and Investments (NS&I) has increased the interest rate on its fixed three-year Green Savings Bonds to 4.73%, a rise from the previous 4.45%. This updated rate applies to both new savers and those renewing their existing three-year bonds.

While this move aims to support the government's green initiatives, the new rate falls short of offerings from other institutions. For instance, GB Bank offers 5.2% on a similar term, and NS&I's own three-year Guaranteed Growth Bond yields 5.07%. The decision to tie up funds for three years may also be a consideration given the current volatility in interest rates and ongoing inflation concerns.

Even one-year bonds present more attractive options. NS&I's one-year Guaranteed Growth Bond provides a 4.99% return, while OakNorth Bank and Close Brothers offer 5.12%, and GB Bank offers 5.11%. Historically, the best rate for Green Savings Bonds over their five-year existence was 5.7%, whereas competitors reached over 6%.

Savers who were in the previous issue of Green Savings Bonds, available between August 22 and November 13, 2023, might see their returns decrease if they reinvest at the current rate.

Tax implications also affect the overall return. NS&I accrues interest annually on Green Savings Bonds but does not allow access to it until maturity after three years. This means savers can only utilize their personal savings allowance for the entire lump sum payout, potentially incurring a tax liability.

For example, a basic rate taxpayer investing £10,000 at 4.73% would earn £1,486 in interest over three years. This amount exceeds the £1,000 annual personal savings allowance for basic rate taxpayers, leading to a tax bill on the excess. If the interest were accessible annually, basic rate taxpayers could potentially avoid paying tax by staying within their allowance each year.

Higher rate taxpayers would face a more significant tax burden on the accrued interest, substantially reducing their net return. Institutions like GB Bank, which allow annual access to interest, enable savers to leverage their personal savings allowance across multiple years.