NS&I slashes the interest rate on its three-year fixed savings bond

  • NS&I has reduced its three-year Green Savings Bond from 5.7% to 3.95%
  • A saver who has saved €10,000 will lose €577 in interest over the three years
  • NS&I has probably already met its fundraising target for this year, experts say

National Savings and Investments has cut the interest rate on its three-year Green Savings Bond from 5.7 percent to 3.95 percent, a dramatic drop of 30 percent.

The higher rate of 5.7 percent was available from August, and those who have already opened the bond will hold it until maturity.

However, it means that a saver who opens the latest issue of the account today and deposits £10,000 into it would earn £577 less in interest over the three years than if he had opened the previous issue.

It comes just a month after the Treasury-backed bank withdrew its hugely popular and market-leading one-year fixed rate accounts.

Shrinking interest rates: NS&I has reduced the interest rate on its three-year Green Savings Bond by 30%

Savings experts say the cut in interest rates is a sign that NS&I has already achieved its fundraising target for this year.

It brings NS&I interest rates below levels seen earlier this year, with the three-year bonds paying 4.2 percent until February.

The new rate is now significantly lower than the current top provider for a three-year bond – which is from JN Bank and pays 5.9 percent.

NS&I raked in £7.7bn of savings in August, fueled by its astronomical 6.2 per cent one-year fixed rate bonds.

Green Savings Bonds do not count towards NS&I’s annual funding target, but the amount of annual funding required through Green Savings Bonds is agreed between the Treasury and NS&I, in addition to government bonds issued by the Debt Management Office, as part of the Green Finance Framework from the government.

Andrew Hagger, founder of the website Money Comms, said: HM Treasury may have revised the amount of funding it needs from Green Savings Bonds.’

Savings experts said they were not surprised by NS&I’s interest rate cut.

James Blower, founder of the website Savings Guru, said: ‘It is no surprise that NS&I has cut rates as only JN Bank is above them in the market.

‘It is likely that they have started to see strong inflows in recent days as fixed income market yields continue to fall.

‘With the strong inflows that NS&I received thanks to the one-year rate, they don’t need the funding and the fact that they cut rates so cruelly reflects that.’

Hagger added: ‘I think this move is purely intended to make the product less attractive and put people off investing in it – this is because the recent 6.2 per cent one-year bond raised over £7 billion and NS&I in 2013 achieved its annual funding target. just over a month.

Will other three-year interest rates fall?

Blower expects interest rates on three-year interest accounts to continue to decline.

He says: ‘I don’t see JN Bank yields lasting beyond this week – and I expect the best buy rate to fall to around 5.5 per cent for three-year accounts this month and fall below that next month and into the new year. ‘

But Hagger doesn’t believe this will impact prices in the broader three-year fixed rate bond market.

He says: ‘I don’t see this affecting pricing in the wider three-year fixed rate bond market, where there are still more than a dozen providers offering rates above 5.5 per cent.’

Blow for savers: Anyone who opens a Green Savings Bond with NS&I now receives less interest

Blow for savers: Anyone who opens a Green Savings Bond with NS&I now receives less interest

The minimum investment in Green Savings Bonds is £100, with a maximum limit of £100,000 per person, per issue.

Investors must be 16 years or older to purchase Green Savings Bonds from NS&I.

Unlike some NS&I products, these bonds are not tax-free. NS&I says: ‘The interest you earn on Green Savings Bonds counts towards your taxable income in the tax year in which your bond matures.’

It is called a ‘green’ bond because savers’ money is used to pay for government green infrastructure projects.

NS&I says the money saved in the bonds will fund projects such as making transport greener, using renewable energy instead of fossil fuels, preventing pollution, using energy more efficiently, protecting natural resources and adapt to a changing climate.

The first issue of Green Savings Bonds went on sale on October 22, 2021. Since then, more than £915 million has been invested.

The first issuance of the bill offered only 0.65 percent interest and was criticized by experts at the time for its low interest rate

Hagger said: “I am sure this move will not go down well with ‘green’ investors keen to do their bit for the planet.

Laura Suter of AJ Bell added: ‘The new rate is below some of the other environmentally focused bills on the market, many of which do not require a three-year commitment to beat the rate.

‘Anyone looking for a green savings option should carefully monitor the competition to ensure what they are doing with their money is consistent with their own beliefs.’