On the day that CPI inflation reached 6.2%, the government, via National Savings, is marketing Issue 2 of the Green Investment Bond at a 3-year fixed, taxable interest rate of 1.3%. That means the whole of the interest over three years will be wiped out in less than one year by inflation at the current rate. For anyone paying higher rate tax on their savings income, it will be wiped out more than twice over. As to the effect of inflation in years 2 and 3 of the bond, that is at the moment anybody’s guess. (The Office of Budget Responsibility suggests that inflation will reach 8.7% by the end of this year.) But if it continues at the current rate, the £100 invested will become £103.95 and be worth about £85.80 (or a little less for anyone paying tax). As things stand, then, there is a ‘negative real rate of return’ of near enough 5%.

It might be said that the situation for ordinary savers is generally very poor. It is, though, as has been pointed out, not so poor as to make the Green Bonds attractive for their interest rate. But two other things may seem to make them appealing. One is that Green Bonds are government backed, and hence ‘safe’; the other is that the money raised goes towards achieving net zero by 2050.

On safety, the National Savings website pushes the point that deposits at banks are usually only guaranteed up to £85,000, whereas National Savings are ‘the only provider that secures 100% of your savings, however much you invest’. To see a government body advertising its own savings products as safe when they pay so much below the rate of inflation, though routine, is shocking. The government, after all, is the body that ends up paying back less than the value of what it borrowed!

Some may feel that such outcomes are acceptable because the money raised goes to environmental projects. The website certainly emphasises that as well, with the prominent injunction ‘Make a difference with Green Savings Bonds’. It is clearly meant to be a key marketing point, though smaller print is less persuasive than it might be. Under ‘Where your money will go’, National Savings say that the money raised from the Bonds will be held in a general account and ‘HM Treasure then plans to allocate an amount equivalent to the proceeds raised from the Green Savings Bonds, to its chosen green projects’. So it is a plan for an ‘equivalent’ amount, and they do not give specifics on what the projects are or when they will be undertaken.

It is important to know because from the point of view of the saver who is motivated by their concern for the environment to accept a negative real rate of return, the efficiency of the Treasury’s use of the money in bringing the improvements in question must be crucial. For that investor there is the clear alternative of making a reasonable guess as to what inflation will be over the next three years, subtracting 1.3, and spending the implied sum themselves on an environmental project, such as through a carbon-offset website. If that guess is that inflation will stay at around the current level, that would mean donating about £15 for every 100 that a person would have saved.

And who can be sure that £15 donated today will not bring more benefit than £100 lent to the Treasury for three years to use for something or other once they work out what? In that case, it is not just those seeking safety for their savings who need to take care. Even those who would accept a loss on their savings just to be contributing to environmental projects could be deceived into thinking these bonds offer a good option when they do not.