Swerve NS&I's new bond deal unless Green saving is your aim: SYLVIA MORRIS

National Savings and Investments (NS&I) raised the rate on its fixed-rate three-year Green Savings Bonds yesterday to 4.73 per cent.

New savers or those renewing their existing three-year bonds will earn this rate, up from a previous 4.45 per cent.

If you want to help the Government finance its green agenda, these could be for you.

For those more interested in securing the best savings rate, it doesn’t cut the mustard. NS&I has significantly upped rates on these Green Bonds this year from 2.95 per cent. 

But GB Bank pays 5.2 per cent and even NS&I itself pays 5.07 per cent on its three-year Guaranteed Growth Bond. 

To tie your money up for three years seems a rash move when rates are so volatile and inflation is rearing its ugly head.

You can earn more on a one-year bond. NS&I’s one-year Guaranteed Growth Bond pays 4.99 per cent. OakNorth Bank and Close Brothers pay 5.12 per cent and GB Bank 5.11 per cent.

The best rate Green Savings Bonds have paid over their five-year history is 5.7 per cent (Issue 5) against a top rate from competitors a shade over 6 per cent.

Those in this issue, on sale between August 22 and November 13, 2023, will take a cut if they reinvest now.

And then there is tax. With the Green Savings Bond, NS&I adds your interest each year – but you can’t touch the interest during the term.

Instead, it pays all the interest out in one go after three years, so you can only use that one tax year’s personal savings allowance to offset tax.

Basic rate taxpayers can earn £1,000 in interest per year in ordinary savings accounts without paying tax. Higher rate payers get a £500 allowance. Additional rate payers get nothing.

If you put £10,000 into the Green Savings Bond at 4.73 per cent, you will earn £1,486 interest over the three years. This will bust your personal savings allowance when it matures.

As a basic rate taxpayer, you will have to pay tax on £486 at 22 per cent (the new rate coming into effect next April, up from 20 8per cent). 

That £107 tax bill will reduce the interest you take home to £380, bringing your return down to nearer 4.6 per cent. 

If it gave you access to the interest each year, you could have no tax to pay on the £473 in year one, £495 in year two and £518 in year three.

As a higher rate payer, you’ll pay 42 per cent on the £986 – or £414 – bringing your net interest down to around 3.6 per cent.

GB Bank gives you access to the interest each year, so you can use three lots of the annual personal savings allowance over the term.