Green premium bonds are a type of savings account offered by National Savings and Investments (NS&I) in the UK. The money invested in green premium bonds is used to fund projects with environmental benefits.
What are premium bonds?
Premium bonds are a savings account offered by NS&I where instead of earning interest, you are entered into a monthly prize draw. For every £1 you invest, you get one entry into the draw for a chance to win between £25 and £1 million tax-free. The prizes are chosen randomly by a computer called ERNIE (Electronic Random Number Indicator Equipment).
With premium bonds, you don’t earn any interest on your investment. The returns come in the form of these tax-free prizes if you are lucky enough to have your bond numbers drawn. Your initial investment is guaranteed by HM Treasury so there is no risk of losing your money, unlike with stocks and shares.
How do green premium bonds work?
Green premium bonds work in the same way as regular premium bonds, where you are entered into a prize draw for tax-free returns instead of earning interest. The key difference is that NS&I promises to only invest the money from green premium bonds in projects that have environmental benefits.
When you invest in green premium bonds, NS&I uses your money exclusively to fund UK government projects focused on things like renewable energy, clean transportation, pollution reduction, nature conservation, and similar eco-friendly causes. So while the prize draw aspect works the same, you can be sure your investment is going towards green initiatives.
What are the key features of green premium bonds?
Here are some of the main features of green premium bonds:
- Minimum investment is £25
- Maximum investment is £100,000
- No fixed terms – you can access your money whenever you want
- 100% secure – investments backed by HM Treasury
- Tax-free prizes if your bond numbers are selected
- Monthly prize draws with over 3 million prizes available
- Prizes range from £25 to £1 million
- Average prize rate is 1.4% (Aug 2022)
- Money is invested exclusively in green government projects
What types of green projects are funded?
The money raised from green premium bonds is used by the UK government to fund a variety of environmental projects aligned with its green finance agenda. Some examples of eligible projects include:
- Renewable energy – Funding wind, solar, tidal, hydropower, and other renewable sources.
- Clean transportation – Investing in electric vehicle infrastructure, public transport, cycling networks, etc.
- Pollution reduction – Projects that reduce air/water pollution through things like wetland restoration or clean-up of contaminated sites.
- Nature conservation – Protecting forests, grasslands, wetlands, and other ecosystems through conservation initiatives.
- Sustainable water management – Improving efficiency of water infrastructure, stormwater management, water recycling.
- Green buildings – Funding energy efficiency retrofits, renewable energy installations, green affordable housing.
- Climate change adaptation – Projects that help communities adapt to effects of climate change like sea level rise or extreme weather.
Who can invest in green premium bonds?
Green premium bonds are available to anyone aged 16 or over who is a UK resident. You can open them for yourself or on behalf of a child under 16. There is no upper age limit.
Because green premium bonds are 100% secure, they can be a good low-risk investment option for:
- First-time investors
- Parents/grandparents investing for children
- Retirees looking for safe returns
- Environmentally-conscious savers
- Those who want an alternative to low-interest savings accounts
As long as you meet the residency requirement, green premium bonds are open to individuals as well as organizations like companies, charities, clubs, societies, universities, etc.
What are the risks of investing in green premium bonds?
There are minimal risks associated with green premium bonds since the underlying investment is fully guaranteed by HM Treasury. However, there are a couple things to keep in mind:
- Your original investment is returned at par value when you cash in. You don’t earn interest so there is inflation risk over time.
- Returns are not guaranteed. Whether you win any prizes depends entirely on luck through the monthly draws.
- The average return of 1.4% is lower than typical savings interest rates. You may get better returns elsewhere.
- Prizes are tax-free but any other increases in bond value may be subject to capital gains tax.
Overall, green premium bonds don’t carry investment risk but their prize-based returns rely on chance so you may get lower returns than expected. The environmental benefits are not guaranteed either.
How much can you invest in green premium bonds?
The minimum investment amount for green premium bonds is £25. The maximum you can hold is £50,000 which increased from £40,000 in August 2022. Here are the key investment limits:
| Investor Type | Minimum Investment | Maximum Investment |
|---|---|---|
| Individuals (16 years +) | £25 | £50,000 |
| Parent/Guardian for child under 16 | £25 | £50,000 per child |
| Organizations | £25 | £1 million |
You can hold green premium bonds yourself or jointly with another person. Once you reach the maximum limit, you cannot make further investments until your holdings drop back below £50,000.
How are prizes paid on green premium bonds?
If you hold the winning bond numbers in any month, NS&I will contact you to let you know you’ve won a prize. You don’t need to claim anything.
For prizes up to £5,000, you can choose to have the amount reinvested into more premium bonds or paid out directly to your bank account. Larger prizes above £5,000 are paid out automatically. Prizes are exempt from UK income tax and capital gains tax.
The prize draws take place on the first day of each month. The January 2023 draw had over 3.9 million prizes worth more than £138 million paid out to lucky winners.
How can you buy green premium bonds?
There are a few ways to purchase green premium bonds:
- Online – You can apply for green premium bonds fully online through the NS&I website. You’ll need to register for an NS&I Online Saver account.
- By phone – Call the NS&I premium bonds team at 08085 007 007 to apply over the phone.
- By post – Download and print the postal application form and mail it in with a cheque.
- Standing order – Set up a standing order from your bank account to make regular deposits.
- Payroll deduction – Some employers may offer the option to purchase bonds directly from your pay.
You can pay using a debit card, cheque, bank transfer or by switching from another NS&I account. Purchases can take 5-6 business days to process.
Can you cash in green premium bonds?
Yes, green premium bonds are fully flexible so you can cash them in whenever you want. There are no lock-in periods or notice periods to access your money. To cash in your bonds, you simply need to:
- Log in to your NS&I account online and select ‘Cash in’ for the amount you want to withdraw.
- OR download a withdrawal form and submit it by post to NS&I.
- Your money will be returned in full within 5 working days.
You can cash in your entire balance or make a partial withdrawal while keeping the rest invested. Your bonds will continue to be entered in the prize draws until you fully cash them in.
Can you transfer green premium bonds?
Green premium bonds can be transferred to another person as a gift or upon death. To initiate a transfer, you need to provide:
- A transfer application signed by the current bond holder
- The personal details of the person receiving the bonds
- The bond numbers to be transferred
Partial transfers are allowed. The bonds can be transferred to an individual, organization or up to four joint holders. The recipient must be 16 or older. Parents/guardians can transfer bonds to a child under 16.
How do green premium bonds compare to other savings options?
| Green Premium Bonds | Regular Savings Account | Cash ISA | |
|---|---|---|---|
| Availability | UK residents 16+ | UK residents | UK residents 18+ |
| Interest Rate | 1.4% Avg Prize Rate | Up to 2% | Up to 2.5% |
| Taxation | Prizes Tax Free | Interest Taxable | Interest Tax Free |
| Investment Limits | £25 min, £50,000 max | None | £20,000 Annual ISA Limit |
| Withdrawals | Fully Flexible | Easy Access | Access With Some Limits |
| Security | 100% Guaranteed | Up to £85,000 FSCS protection | Up to £85,000 FSCS protection |
Green premium bonds offer tax-free prizes but lower average returns compared to savings accounts and cash ISAs. The environmental benefit is a unique factor.
Are there any alternatives to green premium bonds?
Some alternatives to consider include:
- Green savings accounts – Some banks offer savings accounts that invest in eco-friendly funds and enterprises.
- Green stocks/funds – Invest in a managed fund focused on environmental stocks or choose eco-friendly stocks yourself.
- Green ISAs – Build a stocks & shares ISA by selecting sustainable investments.
- Ethical bank accounts – Choose a bank with responsible lending policies like Triodos or Charity Bank.
- P2P lending – Lend to eco-friendly projects like solar panel installation through platforms like Abundance.
The key benefit of premium bonds is the tax-free prize draw while the above options may offer better interest rates or investment returns in exchange for some risk.
What are the main pros of green premium bonds?
- Tax-free prizes if you win in the monthly draws
- 100% secure underlying investment guaranteed by HM Treasury
- No investment risk – you get your full deposit back when you cash in
- Easy access to your money at any time without penalty
- Prize draw gives you a fun way to potentially win big
- Winnings are exempt from reporting requirements and don’t impact means-tested benefits
- Investments support government environmental projects
What are the main cons of green premium bonds?
- Prize returns are not guaranteed and rely entirely on luck in the draw
- Average return of 1.4% is lower than regular savings rates in the current market
- No interest earned so money does not grow while invested
- Inflation can erode the buying power of your investment over time
- Tax may be due on any bond value increases above the prize winnings threshold
- Prize chances diminish the more investors who buy premium bonds
Are green premium bonds a good investment?
Whether green premium bonds are a good investment depends on your personal financial situation and objectives. The key points are:
- The eco-friendly aspect gives your money purpose which some savers value greatly.
- The prizes offer a fun way to get tax-free returns by chance, but are not reliable income.
- The security makes them appropriate for low-risk investors who prioritize safety.
- The low average returns may not sufficiently grow your money long-term compared to other options.
- They can complement a diversified portfolio but are not ideal as your sole investment.
In summary, green premium bonds are best suited to certain environmentally-motivated savers looking for a low-risk and fun way to use a portion of their savings, rather than seeking to maximize returns.
Conclusion
Green premium bonds allow UK savers to put their money towards eco-friendly government projects while still having the chance to win tax-free prizes through a monthly draw. They offer a secure way to invest in line with your values and have fun trying to win big along the way.
However, the prize-based returns are not guaranteed income, so those focused solely on maximizing interest may prefer everyday savings accounts and ISAs. Overall, green premium bonds give environmentally-conscious investors a responsible outlet for their money with the added bonus of regular prize draws.
