Investors need to move quickly to enjoy cashback on top of a whopping 7% return from the Wellesley Finance mini-bond.
Wellesley Finance, the sister firm of peer-to-peer lender Wellesley & Co, has extended its mini-bond offering, and added cashback for new investors.
This mini-bond has already raised £16 million over the past year and offers bondholders yearly interest of up to 7%, plus upfront cashback of up to 3% on top. The funds raised will be used to fund the growth of the business and its secured-lending arm. But just how safe are they?
Who is Wellesley?
Wellesley Finance lends money to credit-worthy British businesses and these secured loans (which are generally secured against property) are then auctioned off to individual investors via Wellesley & Co's online peer-to-peer lending platform. Wellesley Finance retains significant stakes in these loans and also takes first losses.
Since June 2013, Wellesley & Co has funded over £250 million of asset-backed loans, making it the fastest-growing peer-to-peer provider in the UK in 2014.
What do you get for your money?
The interest rate and cashback paid by the bond depend on the size and term of investments, as follows:
|
Investment term/ Sum invested |
Interest paid |
Cashback (investment of £100-£24,999) |
Cashback (investment of £25,000-£59,999) |
Cashback (investment of £60,000+) |
|
Three years |
6% a year |
1.5% |
2% |
2.5% |
|
Five years |
7% a year |
2% |
2.5% |
3% |
As you can see, Wellesley's three-year bonds pay yearly interest of 6%, while the five-year bonds pay 7% a year. In addition, the cashback ranges from 1.5% for investments of £100 to £24,999 over three years to as much as 3% for investments of £60,000 or more over a five year term.
In other words, a £1,000 investment over five years delivers yearly interest of £70, plus upfront cashback of £20. Over five years, your total return would be £370, or a 37% return on your original investment. This works out to be a simple interest rate of a handsome 7.4% a year.
The cashback paid can be withdrawn or used to invest in the Wellesley mini-bond or any Wellesley & Co peer-to-peer lending products.
You'll need to move quickly, as the fundraising campaign ends on Friday 11th September. Funds must be committed to this bond by 5pm in order to be eligible for the cashback offer.
Open a Stocks & Shares ISA today
What investors need to know
Bondholders are lending directly to Wellesley Finance itself with this deal.
The minimum investment is £100 and further investments above this threshold must be in multiples of £10. The interest rates shown above are fixed rates and bond interest is paid every six months. This interest is paid after deducting 20% basic-rate tax, so non-taxpayers will have to reclaim this tax from HM Revenue & Customs.
These bonds can be held inside a self-invested pension plan (SIPP), but cannot be held inside tax-free ISAs.
[SPOTLIGHT]On maturity (after three or five years), investors' original capital will be repaid in full.
With higher returns come greater risks
Given that savings interest rates are so low, these returns look very attractive to investors struggling to produce decent investment income. But how safe is your cash?
By buying these mini-bonds, investors are, in effect, lending to an unlisted, private business. These bonds are not transferable and there is no recognised exchange through which they can be sold or traded. Bondholders can ask Wellesley Finance to end their bond after the first year, but all such requests are subject to liquidity and, at Wellesley's discretion, the firm can retain any cashback paid.
In other words, these bonds are highly illiquid, so bondholders are in for the long run.
Unlike cash deposits, these and other mini-bonds are not covered by the Financial Services Compensation Scheme (FSCS). This Government safety-net protects cash on deposits of up to £85,000 per person per institution (£75,000 from January 2016). So when bond issuers fail, their bondholders cannot turn to the FSCS for compensation.
So be aware that you could end up losing every penny if everything goes wrong.
Open a Stocks & Shares ISA today
More on investing:
Why 'sell in May and go away' would have paid off this year