Add thelocalreport.in As A Trusted Source
A new retail bond offering 8.25 percent interest has been launched, but investors They have been warned to do their homework before depositing the cash.
Alternative asset lender LendInvest’s bond overtakes Even the highest paying savings accounts,
According to MoneyFacts, the easiest access savings account The current one is from Kahoot and pays 5 per cent, but up to a maximum of £3,000. Elsewhere, the top rate is a little more than 4.5 percent,
so how to retail bond vary? Here, we look at how they work and the risks to be aware of.
What are retail bonds?
Retail bonds are issued by companies that want to raise additional capital by borrowing from investors, usually for growth.
They work differently from other types of bonds and come with additional risks. To take into account the additional risk, the interest rates are generally higher.
It is important to understand that retail bonds are an investment, No Cash savings.
For income-seeking investors, retail bonds can play a useful role as part of a diversified portfolio between traditional savings and riskier equities.
They can usually be placed within an ISA, but check with your provider as not all of them offer this option.
How do retail bonds work?
Retail bonds are issued by companies seeking investment and are usually specialist lenders, property firms or infrastructure providers rather than large high-street banks.
With this type of fixed-income investing, individual investors lend money directly to a company in exchange for regular interest payments (called ‘coupons’) and the return of the initial investment at the end of the term.
Get free fractional shares worth up to £100.
Capital at risk.
terms and Conditions apply.
Advertisement
Get free fractional shares worth up to £100.
Capital at risk.
terms and Conditions apply.
Advertisement
For example, LendInvest bonds have a fixed coupon of 8.25 per cent per annum, payable semi-annually over a five-year period maturing in 2030. The minimum investment is £1,000, with £100 increments thereafter.
In practice, this means:
- For every £1,000 of bonds, investors are paid £41.25 of interest
- This is paid twice a year, starting in May 2026 (£82.50 = 8.25 per cent of £1,000)
- Payment will continue till the maturity date of 18th November 2030
- On this date, the £1,000 initial investment will be repaid.
When a company launches a new retail bond it offers it directly to investors, usually for a limited time. Once a bond is issued, you can buy or sell it on the secondary market, usually the London Stock Exchange’s ORB (Order Book for Retail Bonds).
Retail bonds currently available for trading include Enquest PLC (9 per cent, maturity October 2027), London Power Networks (6.125 per cent, maturity June 2027) and Hammerson (7.25 per cent, maturity April 2028).
How are retail bonds different from other types of bonds?
Novice investors may confuse retail bonds with other types of bonds – such as government gilts or fixed rate savings bonds – but there are some key differences.
Rob Caplan, founder of First Wealth, explains: “Gilts are backed by the UK government, so they are considered virtually risk-free. Retail bonds are issued by companies, meaning investors take on the corporate credit risk. Higher yields generally reflect that extra risk.
“Fixed-term bonds from banks or building societies are deposit-based and benefit from FSCS protection – not retail bonds. They sit firmly in the investment rather than savings category.”
The lack of FSCS protection is one of the big risks of retail bonds. The FSCS protects savers’ money up to £85,000 per person per institution in the event of a savings provider becoming insolvent.
But if a company issuing a retail bond gets into financial difficulty, investors do not benefit from this protection.
What can go wrong with retail bonds?
investment A retail bond carries the risk that the issuer will not be able to pay the interest offered – or even return all your capital – at the end of the term.
“Liquidity can also be a big issue; many retail bonds trade infrequently, meaning they may be difficult to sell at a reasonable price if circumstances change,” says Caplan. “Rising interest rates can reduce the market value of existing bonds, and investors often underestimate how quickly sentiment can change.
“Perhaps the most common mistake is to assume that a well-known brand name equates to less risk – history shows that is not always the case.”
What should you check before investing?
If you buy a retail bond, you are effectively lending your money to a company or organization, so you need to be confident that it can pay you back.
Simon Misiewicz, finance expert at Optimize Accountants Ltd, says: “Before investing, do due diligence on the financial health of the issuer: check the credit rating, recent profit performance and debt-to-equity levels.
“Higher yields generally indicate higher risk, especially with smaller or unlisted companies. In 2023 alone, more than £200 million in retail bond investments was frozen or lost following issuer collapses in Europe.”
What types of investors are suitable for retail bonds?
Retail bonds can help investors diversify beyond cash or stocks, potentially providing higher returns than standard savings.
Overall, these investments are best suited for experienced investors who understand the risks involved and are comfortable with the possibility of losing their capital.
They are generally not suitable for people who need complete capital protection, easy access to their money, or who want to avoid credit risk.
When investing, your capital is at risk and you may get back less than you invested. Past performance does not guarantee future results.