An increasing number of so-called green savings accounts are being offered with promises of green credentials.
The number of green savings products now stands at 37, up from 30 in April, according to rates expert MoneyfactsCompare.
However, the definition of “green” varies wildly: some accounts invest savers’ cash in projects that support the environment and others simply plant a tree on savers’ behalf.
Savers opting for green accounts are advised to check the fine print to make sure they’re getting what they expect. Green accounts tend to pay lower rates than the best deals on the market, so it’s worth checking that you’re willing to accept less interest for the additional green deal.
Providers of such accounts include Castle Trust Bank, Triodos Bank, State Bank of India, Ecology Building Society, Gatehouse Bank, Tandem Bank, Paragon Bank, RCI Bank UK and National Savings and Investments (NS&I).
Green is good: Savers opting for green accounts are advised to check the fine print to make sure they’re getting what they expect.
The highest-paying green savings account is Gatehouse Bank’s Shariah-compliant one-year fixed-term Woodland Saver, which pays 5.9 per cent. With a lump sum of £10,000, this account will earn you £590 at the end of the term.
But the best one-year equivalent bond pays 6.05 per cent interest from Union Bank of India. With £10,000 you would earn an extra £605 – £15.
In exchange for opting into their green savings account, Gatehouse Bank will plant a tree in a UK forest on your behalf.
Of the 37 green savings products on the market, 18 offer to plant a tree in exchange for your savings. However, as an alternative, the National Trust’s Plant A Tree scheme will plant a new sapling in your name for a minimum suggested donation of £5. Investing in a higher paying savings account and paying this £5 can be cheaper than putting your money into a green account, all for the same result.
Some of the environmental incentives offered are much more difficult to replicate. For example, money saved in Green Savings Bonds from the government-backed NS&I bank will help with green projects.
NS&I lists six areas where the money will go, including cleaner transport, renewable energy and pollution prevention. The three-year fixed-rate savings account pays 5.7 percent of your savings, the best rate offered for a three-year green product.
With an investment of £10,000, you would earn £570 in interest in the first year. As interest compounds year on year, at the end of your term your savings would be worth £11,809.32.
In a non-green three-year fixed savings account, your savings could grow by up to 5.97 per cent with JN Bank UK’s fixed term savings account, according to MoneyfactsCompare. A lump sum of £10,000 would grow to £11,900 at the end of its three-year term as interest compounds. That’s a difference of £90.68 in interest.
Andrew Hagger, co-founder of personal finance website Money Comms, says: “You can always earn more from non-green products, but an increasing number of people want to do something positive to help the planet.” They are willing to accept a lower rate in exchange for helping the environment.’
Anna Bowes, of consumer website Savings Champion, urges shopping around if you’re looking to save on an eco-friendly product. She says: ‘It all depends on the individual. If you get a good rate and plant a tree, it’s better than not. But make sure you understand what the green element is.’
Gatehouse Bank manages 12 of the 37 green accounts currently available. However, the green incentive in all these accounts is that the bank will plant a tree after the investment. You can weigh up your savings options at moneysupermarket.com/Savings/ or moneyfactscompare.co.uk.
As always, keep in mind that the interest you earn on your savings could exceed your personal savings allowance. Basic rate taxpayers can earn up to £1,000 in interest each year before having to pay tax at their marginal rate, higher rate taxpayers can earn £500 tax free and higher rate taxpayers get nothing. This does not apply to tax-free Isa investments. For fixed rate accounts, you may have to pay taxes in the year you can access your savings.