Does planting a tree really make your savings green?

A growing number of so-called green savings accounts are being offered with promises of eco-friendly credentials. 

The number of green savings products now stands at 37 – up from 30 in April, according to rates scrutineer MoneyfactsCompare.

However, the definition of ‘green’ varies wildly, with some accounts investing savers’ cash in projects that support the environment and others simply planting a tree on savers’ behalf.

Savers opting for green accounts are being advised to check the small print to make sure they are getting what they expect. Green accounts tend to pay lower rates than the best deals on the market, so it is worth checking that you are happy to accept less interest for the additional green offering.

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 being advised to check the small print to make sure they are getting what they expect

Green is good: Savers opting for green accounts are being advised to check the small print to make sure they are getting what they expect

The top-paying green savings account is the One Year Fixed Term Woodland Saver from Shariah-compliant Gatehouse Bank, which pays 5.9 per cent. On a lump sum of £10,000, this account will net you £590 by the end of the term.

But the best equivalent one-year bond pays 6.05 per cent in interest from Union Bank of India. On £10,000 you would earn £605 – an extra £15.

In return for opting for its green savings account, Gatehouse Bank will plant a tree in a UK woodland 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 on your behalf for a suggested minimum donation of £5. Investing in a top-paying savings account and paying this £5 can work out cheaper than putting your money in a green account, all for the same outcome.

Some of the environmental incentives on offer are much harder to replicate yourself. For example, money saved in Green Savings Bonds from Government-backed bank NS&I will help with green projects.

NS&I lists six areas the money will go towards, including cleaner transport, renewable energy and pollution prevention. The three-year fixed-rate savings account pays 5.7 per cent on your savings, the best rate on offer for a three-year green product.

On a £10,000 investment, you would gain £570 in interest the first year. As the interest is compounded 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 a top 5.97 per cent with JN Bank UK’s Fixed Term Savings Account, according to MoneyfactsCompare. A £10,000 lump sum would grow to £11,900 at the end of your three-year term as the interest is compounded. That is a difference of £90.68 in interest.

Andrew Hagger, co-founder of personal finance website Money Comms, says: ‘You could always earn more on non-green products but increasing numbers of people want to do something positive to help the planet. They are willing to accept a lower rate as a trade-off for helping the environment.’

Anna Bowes, of consumer website Savings Champion, urges shopping around if you are considering saving in a green product. She says: ‘It’s down to the individual. If you’re getting a good rate and you plant a tree, that’s better than not. But make sure you understand what the green element is.’

Gatehouse Bank runs 12 of the 37 green accounts currently available. However, the green incentive on all of these accounts is that a tree will be planted by the bank upon investment. You can weigh up your savings options at moneysupermarket.com/savings/ or moneyfactscompare.co.uk.

As always, be aware that the interest you earn on your savings could top your personal savings allowance. Basic-rate taxpayers can earn up to £1,000 in interest each year before they must pay tax at their marginal rate, higher-rate taxpayers can earn £500 tax-free and top-rate taxpayers get nothing. This does not apply to tax-free Isa investments. For fixed-rate accounts, you may be liable to pay tax in the year you can access your savings.

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