NS&I announces new Green Savings Bonds Issue at 3.95% gross/AER - IFA Magazine (2024)

FAQs

Are green savings bonds worth it? ›

Whether or not green bonds are right for you will be entirely down to your personal circ*mstances. If there's a chance you'll need access to your money during the term, they probably aren't the best option for you (in this case an easy access savings account may be more suitable).

Issue 5, the latest issue available, is paying 5.7% AER, fixed. This rate is currently available if you're willing to lock your money away for the full three years with a deposit of between £100 and £100,000. What separates the “green” savings bond from a regular savings bond is how the invested money is used.

What is the interest rate on Green Bonds? In January 2024, NS&I lowered the rate on its green bond again. It now pays an interest rate of 2.95% AER a year, fixed for three years. This means that if you invested £10,000 you would earn £295 per year or just under £10,912 in total over three years after compound interest.

Disadvantages and Pitfalls of Investing in Green Bonds

Lower returns: One of the primary disadvantages of green bonds is the potential for lower returns compared to traditional bonds. Green projects may not always be as profitable, and this can affect the yield of these bonds.

Will I be able to access my money early? No. Once you invest, you won't be able to access your money until your Bond reaches the end of its term, but in return you'll be guaranteed a fixed rate of interest for three years.

If you have £1,000 invested, the odds of winning are one in 4,954,991. And if you have the maximum £50,000 in bonds, your chances increase to one in 96,839. Each £1 bond has an equal chance of winning. So to boost your chances, the more you buy, the more your chances improve in the monthly prize draw.

The interest you earn on Guaranteed Income Bonds will count towards your taxable income in the tax year(s) you receive it. But this doesn't mean you'll have to pay tax on it. It all depends how much interest you earn in total and what rate of tax you pay. You can find out more in our Help section.

Money invested in NS&I accounts provide a source of funds for the government. Because NS&I is part of the government and has the unique backing of HM Treasury, it can guarantee that 100% of your money is safe - no matter how much you save with them.

Four climate risk concerns, which are ransition risks, acute physical risks, chronic physical risks, and climate-related opportunities. We find that the climate risk concerns increase for most firms after the issuance of green bonds.

What could go wrong with I bonds? ›

Variable interest rates are a risk you can't discount when you buy an I bond, and it's not like you can just sell the bond when the rate falls. You're locked in for the first year, unable to sell at all.

Tax-exempt bonds: bond investors do not have to pay income tax on interest from the green bonds they hold (so issuer can get lower interest rate). This type of tax incentive is typically applied to municipal bonds in the US market.

This rate retreat is particularly focused on fixed-term products at the top end of the market. And is a result of the withdrawal of NS&I's 1 year fixed rate of 6.2% – the highest ever rate for its savings bond.

The investor in a green bond becomes a creditor of the issuing entity, and the latter will have to pay back the money borrowed through this bond — within the estimated time — plus a previously (usually) fixed amount of interest, known as a coupon. It is therefore a fixed income instrument.

Green bonds are specifically destined for the funding or refunding of green projects, i.e. projects that are sustainable and socially responsible in areas as diverse as renewable energy, energy efficiency, clean transportation or responsible waste management.

Empirical results show that portfolios with green bonds outperform portfolios with conventional bonds in terms of risk-adjusted returns in the majority of cases in both markets. The benefit of green bonds comes from both the increase in the return and the decrease in the volatility for most of the cases.

The tenure of green bonds issued by Indian corporates is wide—2 to 20 years. The yield on these bonds is in the range of 6.5-10.5% in rupees, based on the bond credit rating, and 5-7% in dollars. Most are investment-grade and hence the credit risk and interest rate tend to be low.

Traditional savings and money market accounts allow you to earn interest and access your money right when you need it. Bonds, on the other hand, grow slowly in value and are worth the most after 20 to 30 years. Consider savings bonds for your long-term savings goals.