Are mini-bonds an alternative to savings?
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.