Everything you need to know about NS&I green bonds

Originally announced in his Spring Budget, the chancellor’s “world first” green saving bond has now been launched.

The new product comes in the wake of the COP26 summit in Glasgow, and at a time when ABP, the world’s fifth-largest pension fund, has confirmed it will stop investing in fossil fuels. According to the Guardian, meanwhile, 130 MPs have delivered a cross-party letter to their pension fund calling on it to divest from fossil fuel companies to “ensure that our pensions are not funding the climate disaster”.

With ESG investment and the battle against climate change set to remain global news in the decades to come, you might be looking to go “green”.

The NS&I green bonds promise to use your money to fund “green” products designed to help the UK achieve its pledge of net-zero carbon emissions by 2050. But does the product make for an attractive investment?

A closer look at NS&I

The government introduced NS&I over 150 years ago as an incentive to save. By placing your money with NS&I you are effectively lending money to the government. Your investment is HM Treasury-backed, and you are guaranteed not to lose your money.

The most recognisable NS&I product is arguably the Premium Bond, launched in 1956, but a range of ISAs, bonds, and investment accounts are also available.

The NS&I green bond is the latest addition to the family.

Back in March, chancellor Rishi Sunak pledged that at least £15 billion would be made available in bonds to help “green” projects in the UK. These will clean up the UK transport network, helping smooth the transition to renewable energy, and help to reduce pollution to protect the country’s living and natural resources.

The rate for the three-year fixed bond has now been announced

While some information was revealed earlier in the year, the rate was kept under wraps until the bonds were officially launched.

Previously confirmed details included:

  • The bonds are available to anyone over the age of 16, but you must have a UK bank account
  • You can deposit a minimum of £100, with the maximum set at £100,000
  • Fixed interest accrues daily but is only added to your investment annually
  • Interest is only payable on maturity, meaning that your investment (after a 30-day cooling-off period) is tied up for three years
  • The bonds are only available online, through the NS&I website, and are currently available until at least 22 January 2022.

Following the official launch of the new green bond on 22 October 2021, the rate has now also been announced. The fixed-rate over three years is 0.65%.

While this may be high enough to encourage you to save if your top priority is sustainability and ESG (environmental, society, and governance) factors, for those who place returns above the environmental impact of their investment, better rates are available elsewhere.

Do ESG factors matter when making your investment choices?

ESG and green issues have dominated news headlines over the last decade or so and this has been reflected in the performance, and inflows, in ESG funds.

FTAdviser reported in August that ESG investments accounted for 90% of investment fund inflows for July 2021. Meanwhile, the Investment Association confirmed that the £7.1 billion placed into ESG funds between January and October 2020 marked an almost 400% increase from the same period the previous year.

And it isn’t just inflows that are improving. Traditional concerns that ESG investment might mean putting your values ahead of potential returns have been largely quashed too.

Last year, the Guardian stated that over the last decade, traditional funds in large global companies offered average annualised returns of 6.3%, compared with 6.9% for sustainable funds.

The NS&I green bond: To invest or not to invest

The success of the NS&I green bond will rely largely on people’s willingness to embrace the chancellor’s idea that the bonds will help the UK to reach its green targets.

While more competitive rates exist, you’ll need to balance your values on green issues with your desired returns.

We can take a look at your whole financial position and help you to decide if a green bond is the right choice for you, so get in touch.

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With decades of experience in financial services, our Chartered financial planners have the expertise to help you make tough decisions about your investments and your retirement.

If you have any questions, please get in touch and speak to us today.

Please note

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

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