Savings giant NS&I has launched a new issue of its Green Savings Bonds, paying an annual rate of 4.20% over a three-year term.
Money invested in the bonds will help to finance projects as part of the UK Government’s Green Financing Framework.
Projects will include making transport greener, using renewable energy over fossil fuels, preventing pollution, using energy more efficiently, protecting natural resources and adapting to a changing climate.
Savers will need to be prepared to lock their money away for three years, as funds cannot be withdrawn during this time. There is a a cooling-off period in the first 30 days of investment.
The minimum investment in Green Savings Bonds is £100, with a maximum limit of £100,000 per person for each Issue.
Investors need to be aged 16 or over to purchase the bonds from NS&I, which is backed by the Treasury.
The bonds are available to purchase and manage online. Customers who do not have access to the internet can call 08085 007 007 and call centre staff have been trained to help customers who are unable to transact online, NS&I said.
Interest is earned daily, added once a year and paid on maturity.
The new rate is 1.20 percentage points higher than a previous Green Savings Bonds products launched last August, at 3.00%.
Jumps in the Bank of England base rate have helped to push rates on savings higher generally.
Ian Ackerley, NS&I chief executive, said: “This is an excellent new opportunity for savers who want to grow their funds over the next three years, at the same time knowing that their investment will make a difference by helping finance the Government’s green projects.
“Customers can save while helping to make the world greener, cleaner and more sustainable.”
Announced in the 2021 Spring Budget, Green Savings Bonds are a specific policy measure and investment in the bonds will not count towards NS&I’s net financing target.
According to financial information website Moneyfacts.co.uk, the average three-year bond paid 3.88% at the start of February, based on someone having a £10,000 investment.
Rachel Springall, a finance expert at Moneyfacts.co.uk, said: “This latest rate rise from NS&I will likely be an enticing option for savers who are content to lock their cash away for three years.
“However, the rate can be beaten by alternative brands, including Gatehouse Bank who pay a market-leading rate in this sector of 4.45%, as an expected profit rate.
“In light of rising interest rates, savers may prefer to lock their money away over a shorter-term, or indeed choose easy access to keep their cash flexible to them. It will be interesting to see the demand this bond receives from savers looking for a competitive return on their nest egg.”
Savers could also lock their money away for a shorter period of time to get rates of around 4%-plus.
Ms Springall said the “best buy” one-year fixed bonds on the market are currently paying just over 4% and an 18-month fixed-rate bond is also available at 4.20% from Charter Savings Bank.
Laura Suter, head of personal finance at AJ Bell, said: “The rate now is a far cry from the paltry 0.65% interest paid on the accounts when they were first launched almost 18 months ago.
“Customers who bought at launch will be frustrated that they are locked into that deal, with new customers able to get a far higher rate.
“Someone who put £5,000 into the bonds at launch will be earning just £32.50 a year in interest, compared to the £210 a year that a new customer will be getting now.”