The best ‘green’ savings accounts for boosting returns

Ethically minded savers wanting to put their money into “green” accounts have got plenty of options, from NS&I’s Green Savings Bond to environmentally friendly digital banks and building societies – and even accounts that use your cash to finance electric vehicles.

But is it possible to save in line with your principles and make a positive impact on the environment, while also earning a decent amount of interest? Or does saving in a green account mean you have to sacrifice some of your return?

Well, the answers are “yes” and “yes”. Choose your green savings account wisely and you can get a competitive rate of interest. But will it be the best rate on the market? Unlikely.

Here, Telegraph Money looks into what “green” savings accounts are offering, and how they measure up compared to the top rates.

What does NS&I’s Green Savings Bond offer?

NS&I’s environmentally friendly savings account made headlines when it launched in 2021: the nation’s biggest savings provider offering a way to earn some interest and help the planet.

But the rate on the three-year bond at launch was a paltry 0.65pc.

As the Bank of England has repeatedly hiked interest rates since, but has since held steady at 5.25pc. With inflation expected to start falling more rapidly, NS&I recently cut the rate on its Green Savings Bond by 30pc – where it previously paid 5.7pc it now offers just 3.95pc.

You can pay in between £100 to £100,000, and all of your money is backed by the Treasury should something go wrong.

Someone who puts £5,000 into the bond today would earn £627.94 in interest over the full term – but you’d have to wait until the end of the three years to get paid any interest at all, as it’s all paid on maturity. This could leave some savers paying tax on their savings interest if it exceeds their personal savings allowance.

You could easily beat this return by opting for the top-rate one-year fixed bond (regardless of its green credentials).

This is from Metro Bank, and pays 5.91pc on balances between £500 and £2m.

It’s covered by the Financial Services Compensation Scheme (FSCS), which protects savings deposits up to £85,000, so your money would still be safe.

Pay in £5,000 here and you’d earn £303.64 in interest in just one year.

How do other green savings accounts compare?

Savings providers with “green” accounts include Triodos Bank, Ecology Building Society, Tandem Bank, RCI Bank and Paragon Bank. These are either classified as “green” due to the account’s name, or the provider marketing itself as being environmentally friendly.

The highest-paying green accounts are currently from the digital bank Tandem. It has one, two and three-year fixed-term savings accounts that all pay 5.25pc.

These all fall short of the market-leading rates, which currently sit around 5.8pc to 5.9pc for all terms, but they’re still fairly competitive.

Anna Bowes, of Savings Champion, says: “In the past, if you wanted to deposit your cash into a ‘green’ savings account, you would need to accept that you’d earn far less than you could elsewhere.

“The good news is that as the ESG movement has developed, there is more choice at more competitive rates. You no longer need to give up all your interest to do the right thing.”

Looking at easy-access savings accounts, the green market-leader is Tandem again, at 5pc (for those who activate its “top up” feature via its app).

The green account paying the least interest is the Ecology Building Society Easy Access account, at 3.15pc.

This is a little less than the market average of 3.17pc, according to Moneyfacts, and falls far short of the current top rate of 5.22pc from Metro Bank.

Stash £10,000 of your savings with the Ecology BS account and you’d get a £319.59 return after a year, compared to the £534.67 return you’d get with Metro Bank – a difference of around £215.

Rachel Springall, finance expert at Moneyfacts, points out that while savers must decide whether to chase the highest return or pick an alternative for its ethical principles, “the rates on green accounts may well be more competitive compared to high-street banks”, some of which have been found to short-change savers by offering poor interest.

What makes these accounts ‘green’?

When it comes to savings accounts, there are different ways of being green.

Some providers plant a tree if you open a specific account – such as Gatehouse Bank’s Woodland Saver accounts.

These aren’t marketed as “green” accounts, but might appeal to some savers who want to support their woodland projects.

Others use the money you deposit to support a particular green cause, such as RCI’s E-Volve Savings 14 Day Notice Account (paying 4.8pc), which it says funds “pure electric vehicles and charging facilities”.

Tandem invests in green lending projects and initiatives, while Triodos Bank only lends to businesses and entrepreneurs that are making a “positive impact”, such as in the renewable energy and social housing sectors. Ecology Building Society says it provides mortgages for properties and projects that “respect the environment and support sustainable communities”.

With NS&I’s Green Savings Bonds, your savings contribute to green projects chosen by the Government. These are said to include things like renewing railway tracks, investing in flood and coastal erosion prevention, and funding for renewable heat systems.

This article is kept updated with the latest information.