There may be hope for savers in tomorrow’s budget as Chancellor Rishi Sunak is expected to announce the launch of a green savings bond, which will be issued through National Savings & Investments (NSI).
The green savings bond that is expected to be announced tomorrow will likely aim to raise money for the Government to invest in environmentally friendly projects to help the Government reach its target of cutting greenhouse gas emissions to net-zero by 2050. Apart from this, no further information about the proposed green savings bonds has been released and it is expected that more details will follow in the next few months ahead of the account being made available to consumers.
If the Government does launch a green savings bond, it might decide to do so as an easy access account, as recent research shows that savers prefer the flexibility of these accounts over higher-paying fixed and notice account alternatives. This would mean that if the Government wanted savers to sign up to its green savings bond, it may decide that an easy access account will be the most lucrative option. In addition to this, the Government has already announced that it plans to launch green gilts this year, which will provide long-term investors with a Government-backed green option.
Although no official announcement about a green savings bond has been made yet, many savers who are currently facing record low rates will be hopeful that if the new savings account is launched, it will have a chart-topping rate that will have a positive impact on the savings market.
Whether or not a new green savings bond will impact rates will depend on the type of account that is launched, along with the rate that is offered. If the account is launched as an easy access savings account and offers a chart-topping rate, it might have more impact on savings rates than if it is launched as a fixed rate bond or has a middle of the chart rate.
Last year, when the Government wanted to raise funds to help fight the pandemic, NS&I offered highly competitive rates on many accounts including its Income Bonds, which sat in the easy access savings chart and had a chart-topping rate of 1.16% AER for numerous months. Also sitting high in the easy access chart for months last year was NS&I’s Direct Saver that offered a rate of 1.00% AER. On the 21 September 2020, NS&I announced that it was cutting rates on many of its accounts including Income Bonds and Direct Saver, which would see these accounts offering from the 24 November 2020 0.01% AER and 0.15% AER respectively.
As the table shows, on the 1 September 2020, before NS&I made the rate cut announcement, the average easy access savings rate stood at 0.22%, this had increased to 0.24% on the 1 October 2020, nine days after the announcement. By the 1 November, when the market had more time to respond to the rate cuts, the average easy access saving rate had already fallen back to 0.22%, while on the day the rate cut was introduced on the 24 November 2020, the average easy access saving rate had fallen to 0.20%. It fell further to 0.19% on the 1 December 2020, just seven days later, and a month later on the 24 December 2020 it had fallen further to 0.18%.
|Average easy access saving rate|
|1 September 2020||0.22%|
|1 October 2020||0.24%|
|1 November 2020||0.22%|
|24 November 2020||0.20%|
|1 December 2020||0.19%|
|24 December 2020||0.18%|
|1 March 2021||0.17%|
There are likely to be a combination of factors for the fall in easy access savings rates at the end of last year, including savers making higher than normal deposits into these accounts that resulted in banks risking becoming over-funded, but the cut in NS&I top rates may have also reduced competition within the market, resulting in providers reducing rates. As such, if a new green savings bond is launched by NS&I that offers a chart-topping rate, it may help to increase competition within the market and help easy access savings rates to rise again.
At the moment there does seem to be consumer appetite for ‘green’ products and some providers are choosing to launch green savings accounts as a way to attract savers without increasing rates, for example Gatehouse Bank has recently launched a range of green fixed rate bonds offering the same rate as their previous bonds. However, rates still impact where many savers choose to deposit their funds, as in the final three months of last year, when NS&I announced and reduced its savings rates, savers withdrew £26.5 billion from the accounts. As such, the Government may launch the green savings bond with a chart-topping rate to ensure it attracts the amount of funds it is aiming for.
While there remains a lot of uncertainty around the green savings bonds, particularly the type of accounts that will be launched and the rate offered, if the announcement is made in tomorrow’s budget, it could provide savers with a glimmer of hope that savings rates may, after record lows, start to slowly increase again.
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