Go Green to Make Green: UK Government announces Green Savings Bond
July 22, 2021
2 min read
What's going on here?
The Green Savings Bond is a new savings product, intended to go on general sale this summer to raise significant funding for government environmental projects.
What does this mean?
As part of this year’s Budget, Chancellor Rishi Sunak has stated that the Treasury is setting up a Green Savings Bond. This new account will enable savers to use savings of between £100 – £100,000 to help the government fund environmentally focused projects in what has been dubbed a “collective effort to tackle climate change”. Importantly, investor savings are 100% guaranteed, as the savings are not reliant on the green projects being successful. The Government will use the money to finance their green projects. Put simply, savers will be lending cash to the government, to be paid back at a later date with interest growth included.
What's the big picture effect?
The big question here is where the new bond will fit into the market. The bond lasts for three years. The market average interest rate for three-year bonds is 0.76%, but some do go as high as 1.6%. Speculators will hope that the fact that the government has not yet announced the interest rate means that it could provide an interest rate on the higher end of that spectrum.
As these bonds are operated by National Savings and Investments, which is backed by the Treasury rather than a bank, the Bond can also offer 100% safety to those investing in the scheme. This is a significant advantage to savers who would not be granted such safety in general market investments. Sarah Coles, a personal finance analyst at Hargreaves Lansdown, has stated that the Government is offering a “winning combination of helping savers support green projects while protecting them with the strength of [the National Savings and Investments] name, and the 100% government backing.” When paired with the National Savings and Investments trusted brand and current record low-interest rates, a large uptake in these bonds is anticipated.
Although purported to be a world first, this Green Savings Bond is not the first savings bond to provide investors with a chance to better the environment. The Ecology Building Society has a product that provides lending to support sustainable projects. This raised over £40m for such purposes in 2019. In a bid to support a sustainable future, Triodos offers another product that invests in a variety of environmentally virtuous companies. Gatehouse Bank, on the other hand, offers a simpler scheme, whereby a tree is planted for each new savings account set up.
Generally, the Green Savings Bond offers investors a reliable avenue to invest their money with morally sturdy aims. Despite the interest rate having not yet been stipulated, budding investors should take note of similar products, with a side-view to the fact that a 100% guaranteed bond will reduce the interest rate compared to the general market, which is not risk-free.
Report written by Matt Bryan
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