The success of New Green Bond may depend on the interest rates offered
Rishi Sunak plans to review plans for its green savings bond worth £15 billion in the future. This allows Brits to invest in renewable energy schemes.
The world’s largest bonds will be accessible via NS&I, a savings organization backed by the Ministry of Finance.
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The Prime Minister’s announcement is to strengthen the UK government’s efforts to advance to the green ahead of the COP26 Climate Conference in Scotland.
Sunak previously said that the UK will sell its first green bond in 2021 to meet the growing demand for such assets designed to fund the allocation of eco-friendly resources .
The success of New Green Bond may likely depend on the interest rates offered.
“Savers showed that when NS & I cut interest rates on many accounts last November, they are willing to vote on their feet. If green savings bonds offer a small interest rate , may not be able to ignite demand from the public. Laith Khalaf, financial analyst at AJ Bell, said:
Thanks to the Bank of England’s quantitative easing program and ultra-low interest rates, the government is now able to borrow about 0.4% per year for five years.
“The premiums provided by green savings bonds exceeding the average gold leaf yield are effectively an extra burden for taxpayers, and the costs incurred in this way are naturally the prime minister to repair the country’s finances. It will naturally be pressured against other financial decisions that have been made. A pandemic,” Kalaf added.
The long-term nature of funding for green projects means that the Treasury needs to determine how long the savings are saving money.
“Perhaps instant access accounts don’t look viable because the government doesn’t want money that has been poured in regularly. For example, a product that locks savings for five years looks better. Governments can save money The longer you ask to keep your money on bonds, the less likely you will get it without offering a slice of serious interest.”
Demand for ESG investment funds has been rising significantly recently, reaching £2 billion in 202 from £3 billion the previous year.
“The new NS&I bonds will be a litmus test to see if there is a large appetite in the sustainable product savings market. In theory, Green NS&I bonds are from a reliable provider for consumers. It’s a great idea to offer an eco-friendly savings account option. However, the Treasury faces challenges in bond design, ensuring you hit the mark with savers and at the same time, it doesn’t cost too much money on taxpayers. ” Caraf said.
