Funding the U.K.’s Green Transition Comes at a Price for Savers

(Bloomberg) -- The U.K. will offer its first green savings bonds to retail investors from Friday, betting citizens are willing to sacrifice returns to fund the country’s efforts to mitigate climate change.

The savings bonds will finance projects including renewable energy, greener transport and climate change adaptation, according to a statement from NS&I, a state-backed savings bank. The money will need to be tied up for three years and will pay a fixed 0.65% rate of interest.

That’s lower than retail investors currently get from its conventional retail debt, known as premium bonds, which offer prizes that equate to about 1% a year. The government is relying on people to turn to ethical investing, given polls show U.K. citizens increasingly consider climate change a top concern.

“If you came across an account offering 0.65% over three years in any other context, you wouldn’t give it a second glance,” said Sarah Coles, senior personal finance analyst at Hargreaves Lansdown Plc. “Early enthusiasm for the bonds is likely to wither.”

Until now, the U.K.’s green finance has been targeted at institutional investors. The nation sold its second green gilt on Thursday after its debut last month broke records for orders.

Buyers such as pension funds have had to sacrifice a couple of basis points of yield to get the green securities -- but that’s far less than the hit for retail buyers. Rates are also expected to rise given bets on Bank of England interest-rate hikes in the coming year.

Savers currently have access to three-year accounts offering 1.8%-1.9% so the NS&I’s offering is “way off the money”, said Becky O’Connor, head of pension and savings at Interactive Investor. “Some may still go for it -- but they would be effectively losing money in real terms to do so.”

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