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Are mini-bonds investments a risk worth taking?

Ever been tempted by an attractive investment opportunity? Our guest, Andrew Bailey of the Financial Conduct Authority, discusses if it’s a risk worth taking.

This is a guest post by Andrew Bailey.  All views expressed are Andrew’s own, and not necessarily shared by Which?. 

If you saw an investment opportunity offering returns of eight, 10 or even 12 per cent, would you be tempted to invest your cash?

If so, you wouldn’t be alone. ‘Speculative mini-bonds’, offer high returns – but at a high risk. You may have seen these products discussed in Which? Magazine or news stories.

The particular kind of mini-bond we’re concerned with is where a company raises money from investors with the intention of lending the money to a third party or investing in other companies, or property.

Being able to pay interest and repay the original investment depends on how these lending or investment activities perform. But product marketing often plays down the risk of losing your money. 

‘Returns may never materialise’

In a time of low interest rates, it’s not surprising that these products are attractive. The problem is that the promised returns may never materialise.

In reality, these products have a high chance of failure, with the result that investors could lose all of the money they invest.

You may be given the impression that the products are regulated by us, or protected by the Financial Services Compensation Scheme – but this almost always isn’t the case, meaning that if the issuer of the mini-bond goes bust, you’re unlikely to get the money you invested back. 

Under the current law, it is typically outside our scope to regulate companies that only issue these products. But we can place restrictions on how they’re marketed and who they’re marketed to.

Choosing suitable products

From 1 January, we’re severely restricting the marketing of these more speculative types of mini-bond to ordinary consumers.

We are so concerned about the potential level of consumer harm that we’re introducing these changes straight away to protect your savings. 

This means that you should only receive promotions for these products if you have a high net worth or are an experienced and thus sophisticated investor in them. And the promotions will have to be clear on an important point – if you invest in these products, you risk losing all your money.

They’re very unlikely to be suitable products for you to invest large amounts of your life savings or your pension into.

If you come across a speculative mini-bond product offering high returns being marketed openly on the internet after 1 January, there is a good chance that the person making that promotion is breaching our rules or the law, and the offer may be a scam.

You can visit our ScamSmart website for more information on spotting scams.

Further rule changes

These mini-bonds are just one example of a high-risk investment. We’re taking a closer look at this whole area.

We will be proposing further changes to our rules to protect consumers next year. In the meantime, remember that usually the higher the return promised, the higher the risk.

As a rule of thumb, it is a bad idea to invest more than 10% of your net wealth in this kind of asset. But never invest more than you can afford to lose.

If you want to learn more about the risks of investing in mini-bonds, you can find out more information here.

This was a guest post by Andrew Bailey.  All views expressed were Andrew’s own, and not necessarily shared by Which?. 


A suitable warning. As with all these investments, it does depend on how well one can sleep at night with money paid out for a doubtful return. It would be interesting to see how such investment compares, in terms of risk, to betting on horses, in the casino or the lottery. You also hint at fraudulent bonds which are a predictable side effect of these transactions and another opportunity to steal money. I suppose if you have enough money not to care, then such gambles might be worthwhile, but most of us haven’t.

I’ve not heard of mini-bonds but thanks for the warning, Andrew.

How can a high-risk lend-to-earn venture be described as an ‘investment’? It is a speculation.

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Almost all investments are gambles – share values rise and fall, dividends change, companies fail. Bonds are usually for money lent to government (for example to nationalise all our utilities…….. ☹ ) and commercial enterprises. With the interest rate market very low, bonds offering high rates simply indicate the difficulty those firms have persuading lenders that they are a sound bet; therefore, they are high risk. If you simply want to gamble with spare cash, then your choice but if you are blessed with common sense and not much spare money then avoid such temptation. It will likely end in tears.

My modest investments are in a moderate risk portfolio, a mix of blue chip and other relatively safe shares, some liquid investment funds, “safe” bonds, and produce a modest 3 to 4% income a year with not much serious fluctuation in capital value.

These high-return “investments” marketed at consumers without the benefit of financial advice have no place in a properly regulated market.

I can understand the temptation that investors looking for an inflation-beating return are under, when cash savings pay 1% and inflation is running at closer to 3%.

But first stop for anyone looking for inflation-beating returns should be to maximize opportunities for tax-free investments, particularly SIPP and ISAs, perhaps investing in somewhat less risky UK FTSE 100 funds or shares. You probably wouldn’t think twice about investing your pension with Aviva or L&G, so why not the underlying company? With the unusual market conditions caused by Brexit uncertainty, these two companies are currently paying out annual dividends of 6% or more.

Please note this is not financial advice, just a suggestion of where you might look currently for better returns without having to considering dodgy opportunistic investments. Please read all the Which? Investment articles before making any decisions with your money.