NS&I said average fixed rates had risen in the broader savings market since launching its green bond last October and it wanted to offer a “new competitive rate” to savers. But experts suggested the government-backed bank had to resort to drastic measures after its initial rate of 0.65% was poorly received at a time of soaring inflation.
Sarah Coles, of Hargreaves Lansdown, a securities broker, said the doubling of the green bond rate was a “spectacular step” after the “genuine disappointment” of the former yield.
“These bonds are specifically designed to raise funds for particular projects, so not meeting the fundraising goal would have put a damper on the work. They had to do something quite dramatic to overturn these bonds.
“The doubling of the rate still leaves the bonds far from the best in the market, but is likely to appeal to a good portion of savers who want to do the right thing with their money, in an account fully protected by the Treasury, and with a brand they know and trust.”
Savers must be aged 16 and over, invest a minimum of £100, up to a maximum of £100,000 per person, and the money cannot be withdrawn until the end of the three-year period.
Becky O’Connor of broker Interactive Investor said: “Savings rates are still significantly below inflation and therefore losing money in real terms, but for those who still wish to store money in species and doing it in an environmentally friendly way, that rate is now at least competitive.”