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Are mini-bonds a good alternative to savings?

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You may have seen mini-bonds advertised, offering as much as 10% returns over reasonably short timeframes. Companies such as John Lewis, Hotel Chocolat and Naked Wines have famously employed them as a way of accruing debt-based funding. If you’re an individual with some capital available for investment, these numbers can be very enticing, but it’s important for you to be aware of the risks involved.

Mini-bonds generally have terms of three to five years. If you choose to invest, you will earn interest at regular intervals and when the bond matures and you reach the end of the agreed term, you’ll receive your initial stake with a lump sum of interest. Does that sound too good to be true? If everything runs smoothly, they can definitely provide you a great return on your investment.

The downside, however, is the lack of certainty. Your mini-bonds will not be covered by any kind of deposit protection scheme, like you would find with a savings account. Your investment is at risk so you must be comfortable that the possible returns are worth taking that risk for.

Unlike corporate bonds, mini-bonds cannot be traded on the stock market. That means that once you’re in, you’re in; the bonds must be held until they mature and they can’t be cashed in early. There are also much looser regulatory requirements for mini-bonds. This saves the issuers plenty of hassle and paperwork but if the issuer were to go bust before the bond matures, there’s not a lot that the investor can do about it.

If all goes well, however, mini-bonds can be a great option for both investor and issuer. They can encourage investors to become actual stakeholders further down the line and produce strong brand advocates, leading to a profitable future for both parties.

In conclusion, yes, mini-bonds certainly are an alternative to savings, but whether they’re the right alternative for you is for you to decide. If you prefer your investments with a little less risk, you might be better served by a high interest savings account or cash ISA.

Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.

This blog was posted some time ago and its contents may now be out of date. For the latest legal position relating to these issues, get in touch with the author - or make an enquiry now.

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