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NS&I axes three-year green bond rate

14 November 2023

The government-backed provider has introduced a significant rate cut and more are likely to follow.

By Matteo Anelli,

Reporter, Trustnet

A new issue of NS&I’s Green Savings Bonds has been released today at a 3.95% fixed-rate over a three-year term – a 1.75 percentage points decrease in interest rate compared to the previous issue which had been available until today.

The newer version of this government-backed cash instrument will be yielding 3.95% instead of 5.7%, meaning that on a lump sum of £10,000, savers will receive £577 less in interest across the three years (assuming annual compounding) – as noted by Laura Suter, head of personal finance at AJ Bell.

“NS&I has once again wielded the axe to its savings rates, this time slashing the rate on its eco-savings product,” she said. “The cut also puts rates below where they were at earlier this year, with the three-year bonds paying 4.2% up until February.”

This puts the vehicle “significantly below” the 5.9% offered by JN Bank, the current top provider for a three-year green bond, but also below other environmentally-focused competitor accounts.

“Many products on the market don’t require a three-year tie-up to beat the rate,” said Suter. “NS&I’s guaranteed bonds attracted a huge amount of savers’ money this year – meaning the provider has already hit its funding target for the year.”

This means that its other savings products will become less attractive too, as NS&I doesn’t need to use high rates to lure more savers in.

Anyone hunting around for a green savings option needs to scrutinise the competition carefully to ensure that what they are doing with their money tallies with their own beliefs, suggested Suter, who concluded: “Unfortunately, this is a trend we’re likely to see on repeat, as many expect that we’ve hit peak interest rates and that savings rates will only drop from here.”

Myron Jobson, Senior Personal Finance Analyst, interactive investor, added that NS&I is not the only provider to lower its interest rate, noting that the yields on offer are “dropping like flies” across the industry following the Bank of England’s decision to hold interest rates at 5.25% after 14 consecutive base rate hikes.

As such, he suggested long-term savers should put their money to work in the stock market rather than tying it up in cash.

“Those who can afford to put money away for five years or more should consider investing for the potential of inflation beating returns that far outstrips savings rates,” he said.

“Investing can be volatile on a day-to-day basis and while the potential for greater returns from the stock market comes with inevitable risk, taking a long-term view means you can smooth out some of those highs and lows whilst benefiting from the long-term potential that comes with this approach. But everyone needs a low-risk buffer too.”

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