The new normal for low risk, green, saving and investing?
After more than 10 years of ultra low savings rates, Central Banks have taken rapid action over the last few months to turn the tide of inflation by raising interest rates which in turn is benefitting savers and investors with higher returns on their cash. At the same time, government borrowing costs have also risen as investors respond to the impact of both rate rises and inflation on the value of government bonds (in the UK called gilts). The UK’s borrowing rate in particular was given something of an upwards “boost” during the brief tenure of Ms Truss as Prime Minister and as of this week we are seeing UK government gilt rate reaching similar levels under pressure from a smaller fall than expected by the Bank of England for inflation.
Green savings and investment options have benefitted from these rate rises, with significant increases in the interest rates on offer across the board compared to last year. Our own council investments have also seen a rise in the interest rates on offer, following the benchmark — set by gilts — which determines the rate the UK government offers to local councils for their borrowing.
What is currently on offer for green, low risk, saving and investing?
A review of some of the key players in the green saving and investing market shows a range of interest rates on offer. We have summarised them in the table below, showing the headline interest rates, and some of the features and benefits the products offer.
This table covers options for savers, with cash savings being protected by the Financial Services Compensation Scheme which guarantees your deposit up to a value of £85,000 per banking license, and investment bonds (such as those issued by banks, governments and councils) which do not have the same protection. We have included options for both saving and investing because these products provide different features, benefits and risks when it comes to mobilising your money to support the UK push towards net zero. You should always consider the risks carefully when locking your money away for the long term.
As a rule of thumb, there are higher rates available to green savers and investors who are prepared to lock their money away. However, few of these longer term products are eligible for inclusion in an ISA, so any interest paid may be subject to tax depending on your personal circumstances. ISA eligible investments (which allow you to save or invest up to £20,000 in any tax year) tend to offer slightly lower rates for bank and building society savings in recognition of this tax benefit.
NS&I — who provide savings and investments on behalf of the UK government — also recently raised the rate on their flagship green bond product to 4.2% p.a., with interest paid as a lump sum after 3 years.
When Abundance created our council investments in 2020, the aim was to create an investment which gave investors the ability to make a real impact with their money locally by funding council projects which are tackling the challenge of the climate emergency. We also wanted to open up impact investments to a wider group of investors, taking advantage of the lower risk of investing in council investments versus our company investments.
Our latest council investment — with Lewisham Council — is offering a rate of 4.3% interest a year, paid twice yearly over five years, with capital returned in instalments. The money will help finance projects from Lewisham Council’s Active Travel Fund, which supports a range of sustainable transport initiatives to promote active travel, reduce reliance on cars and provide the infrastructure for greener transport options.
RISK WARNING
Holding investments in an IFISA does not reduce the risk of the investment or protect you from losses. You can still lose all your money. It only means that any potential gains from your investment will be tax free. The tax treatment of your investment will depend on your individual circumstances and may change in the future.
As with any investment, there are risks when investing on Abundance. Your capital is at risk and you could lose all the money you invest. The return on your investment depends on the ability of the company or council you have invested in to pay your returns. Investments on Abundance are generally long term and you should be prepared to hold them to maturity. The investments are illiquid and you may not be able to sell them if you need your money back earlier, and their value can rise or fall. Some investments may be secured, but this does not guarantee repayment or your return. Quoted returns are no guarantee of future returns and past performance is not a guide to future performance. Specific risks will apply in relation to each investment. Please consider all risks before investing and read all of the information available about each investment.
This content has been approved as a financial promotion by
Abundance Investment Ltd, which is authorised and regulated by the Financial Conduct Authority (525432). Approval date: 25th May 2023.
