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UK launches world's first green savings bond

British Prime Minister Boris Johnson
British prime minister Boris Johnso during a visit to the Moray Offshore Windfarm East, off the Scottish Aberdeenshire coast. The PM has called UK 'Saudi Arabia of wind power.' Photo: Jane Barlow/Reuters (POOL New / reuters)

The UK has launched the world's first green savings product, bringing a green savings bond to the market.

The Green Savings Bonds are available from NS&I’s website and are offered at a 0.65% fixed annual rate over a three-year term.

The bond will give savers over the age of 16 the chance to back the government’s green projects and put their money to work in the fight against climate change.

Green projects like zero-emissions buses, offshore wind and innovative low-carbon technologies will be eligible for funding, along with programmes to help the country adapt to a changing climate like flood defences.

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Projects to boost living and natural resources such as planting trees, protecting biodiversity and environmentally sustainable agriculture will also be eligible.

With demand for environmentally friendly investments growing, particularly amongst young people, the bonds offer savers a way to generate both financial and environmental returns.

Read more: UK's second green gilt raises another £6bn

Research found that around 80% of people aged between 25-44 would be very or fairly interested in the concept of a green savings product, and that 42% of 18–34-year-olds would be willing to accept a lower return on their savings if they knew their money was being put towards green projects.

Because the green savings bonds are offered by NS&I, the Treasury-backed savings organisation which offers Premium Bonds and other products, 100% of the investment is protected and guaranteed by the Treasury.

The government will report regularly so savers can see which projects have been funded and the positive environmental impact their investment is making.

And in another world-first, the UK will report on the social co-benefits of the projects funded, so savers will also be able to track metrics such as the number of jobs created and SMEs or households who have benefited.

Chancellor Rishi Sunak said: “Our world-first Green Savings Bonds give savers across the UK the chance to back the Government’s green projects and put their money to work in the fight against climate change.

The UK is already a world leader in green finance and these innovative new savings bonds will deliver both financial returns and environmental benefits, in a transparent and secure way.”

In the last month, the UK has issued £16bn of green sovereign bonds, with a record-breaking debut issue of £10bn that attracted the largest ever order book for a green bond, followed up by a successful second issuance of £6bn earlier this week.

“Following the success of the UK’s first two Green Gilt issuances, it’s great to see the launch of the new Green Savings Bonds, which will allow savers to put their money to work for the benefit of the environment,” said Rhian-Mari Thomas, CEO of Green Finance Institute.

However, Sarah Coles, senior personal finance analyst, at Hargreaves Lansdown, said the interest rate offered was rather poor and that the government was relying on savers who are willing to pay a price for going green with their savings.

"NS&I Green Bonds are unlikely to be picked by enormous numbers of savers at this rate, because with a return of just 0.65%, early enthusiasm for the bonds is likely to wither," Coles said.

"If you came across an account offering 0.65% over three years in any other context, you wouldn’t give it a second glance. You can currently get 1.81% from Al Rayan over three years, and even 1.45% from the same bank over one year. You can get 0.65% on an easy access account (with limited withdrawals) from Coventry Building Society, so it’s easy to wonder why you’d bother tying your cash up for three years for the same return."

She added that there’s also a reasonable chance that interest rates will rise over the next three years. "So a year or so down the track, 0.65% is likely to look even less rewarding by comparison," Coles said.

Meanwhile, earlier this week, the UK clamped down on greenwashing and set new global standards for environmental reporting with requirements for certain large businesses to set out their green credentials.

Watch: Will interest rates stay low forever?