Are mini-bonds an al­ter­na­tive to sav­ings?

The Daily Telegraph - Your Money - - FRONT PAGE -

My son has £50,000 to in­vest for the long term and has asked what I think of in­vest­ments in mini-bonds that ad­ver­tise re­turns of up to 10pc. Are they too good to be true? BT, VIA EMAIL

Mini-bonds are a way for com­pa­nies to bor­row money from in­di­vid­u­als such as your son. The in­vestor earns in­ter­est each year and then re­ceives the ini­tial stake back when the bond ma­tures – if all goes smoothly.

How­ever, un­like sav­ings ac­counts, mini-bonds are not cov­ered by any de­posit pro­tec­tion scheme. If your in­vest­ment turns sour, you could lose your cash. You must sat­isfy your­self that the pos­si­ble re­turns out­weigh this risk.

Also worth not­ing is the fact that mini-bonds can­not be sold or trans­ferred. This means you have to hold them for the full term.

Many peo­ple are tempted by the high re­turns promised, but cash sav­ings of­fer much greater pro­tec­tion and other forms of in­vest­ment have more flex­i­bil­ity, as shares, funds and re­tail bonds can be traded.

If you do buy mini-bonds, carry out thor­ough re­search and spread your risk across mul­ti­ple com­pa­nies. Then, if one firm fails, not all your cash will be at risk.

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