There are a growing number of so-called green savings accounts being offered with promises of environmentally friendly credentials.
The number of green savings products now stands at 37 – up from 30 in April, according to rate controller MoneyfactsCompare.
However, the definition of ‘green’ varies greatly, with some accounts investing savers’ money in projects that support the environment, while others simply plant a tree on behalf of savers.
Savers opting for a green account are advised to check the fine print to ensure they get what they expect. Green accounts typically pay lower rates than the best deals on the market, so it’s worth checking whether you’ll accept less interest for the extra green offer.
– View the best, easily accessible savings rates here.
Green is good: Savers opting for a green account are advised to check the fine print to ensure they get what they expect
Providers of such accounts include Castle Trust Bank, Triodos Bank, State Bank of India, Ecology Building Society, Gatehouse Bank, Tandem Bank, Paragon Bank, RCI Bank UK and National Savings and Investments (NS&I).
The best paying green savings account is the One Year Fixed Term Woodland Saver from Shariah-compliant Gatehouse Bank, which pays 5.9 percent. On a lump sum of €10,000, this account will earn you €590 at the end of the term.
But the best equivalent one-year bond pays 6.05 percent interest from Union Bank of India. On €10,000 you earn €605 – €15 extra.
– View the best fixed-rate savings accounts here
In return for choosing a green savings account, Gatehouse Bank will plant a tree in a British forest on your behalf.
Of the 37 green savings products on the market, 18 offer to plant a tree in exchange for your savings. However, as an alternative, the National Trust’s Plant A Tree Scheme will plant a new sapling on your behalf for a suggested minimum donation of £5. Investing in a top paying savings account and paying it £5 could work out cheaper than putting your money in a green account all with the same result.
Some of the environmental incentives on offer are much more difficult to replicate yourself. For example, the money saved in Green Savings Bonds from government-backed bank NS&I will help with green projects.
NS&I names six areas where the money will go, including cleaner transport, renewable energy and pollution prevention. The three-year savings account with a fixed interest rate pays 5.7 percent on your savings, the best rate offered for a three-year green product.
With an investment of €10,000, you will receive €570 in interest in the first year. Because the interest rate increases year after year, your savings will be worth € 11,809.32 at the end of your term.
On a non-green savings account with a fixed term of three years, your savings could grow by as much as 5.97 percent with JN Bank UK’s Fixed Term Savings Account, according to MoneyfactsCompare. A lump sum of £10,000 would grow to £11,900 at the end of your three-year term as interest accrues. That is a difference of € 90.68 in interest.
Andrew Hagger, co-founder of personal finance website Money Comms, says: ‘You can always make more with non-green products, but more and more people want to do something positive to help the planet. They are willing to accept a lower rate as a trade-off for helping the environment.”
Anna Bowes, from consumer website Savings Champion, advises you to shop around if you’re considering saving on a green product. She says, “It’s up to the individual. If you get a good interest rate and plant a tree, that’s better than not. But make sure you understand what the green element is.”
Gatehouse Bank manages 12 of the 37 green accounts currently available. However, the green incentive on all these accounts is that the bank plants a tree when investing. You can weigh up your savings options at moneysupermarket.com/savings/ or moneyfactscompare.co.uk.
As always, keep in mind that the interest you earn on your savings may be higher than your personal savings allowance. Basic rate taxpayers can earn up to £1,000 in interest each year before having to pay tax at their marginal rate, higher rate taxpayers can earn £500 tax-free and higher rate taxpayers get nothing. This does not apply to tax-free Isa investments. For fixed-rate accounts, you may have to pay taxes the year you access your savings.