Leon offers bond that could pay 15% interest
Leon, the healthy restaurant chain, has launched a bond promising gross annual yields of between 10% and 15% – smashing returns paid by high street banks and mainstream investments.
It's a good offer and a fun idea but I should disclose that interest is paid in the new, alternative currency known as £eon pounds – not pounds sterling. So if you invest £5,000 for three years, you can get £600 a year to spend in the restaurant (equal to a gross annual interest of 15% for a basic rate taxpayer).
What are the details?
To invest you need to be a Leon Club member, which is both easy and free to join. You also join the club when you apply for the bond. The closing date is on the 31 July and it's on a first come, first serve basis so if you're interested you need to be quick.
Members can invest a minimum of £1,500 for three years, receiving 120 £eon Pounds a year. A £3,000 investment gets you 300 £eons and £5,000 gets you 600 £eons.
Unless you live, work, or regularly visit the capital, the offer might not seem remotely tempting since the chain so far only exists in London. On the other hand, Leon is issuing the bond to facilitate expansion.
The money raised will be used to open new restaurants, pay off a convertible loan and launch the not-for-profit Leon Foundation, with the aim of making good food accessible to all.
Your initial investment is due to be repaid on maturity – in pounds sterling - and every bond will be entered into a seasonal prize draw four times a year. The dates will mark the beginning of a new season: the autumnal equinox, the winter solstice, the vernal equinox and the summer solstice.
Prizes up for grabs include places at the Leon cookery school in Devon, cooking holidays and food hampers.
A risky investment?
Mini-bonds, whereby you invest directly with the company, are becoming a popular way for businesses to fund expansion plans and for investors bored with traditional methods to liven things up or to try and beat returns from cash savings accounts.
But the small print makes clear that there's no guarantee you will get your money back or any of the returns promised under the deal. The success of your investment depends on the growth of the small business and your money isn't covered by the Financial Services Compensation Scheme.
If Leon hit trouble and went bust, you'd probably lose your original investment.
Other bonds doing well
Tesco Bank recently launched a 5% bond and received £200 million worth of investors' money. John Lewis also offered up to 6.5% on its popular bond, with part payment in vouchers.
Smaller businesses that have offered similar schemes in the past include Hotel Chocolat – now a prominent high street chocolatier – and travel website Mr & Mrs Smith.
Green energy company, Ecotricity, issued two ecobonds - one in 2010 and another in 2011 - each raising £10 million. The company says it expects to issue a new ecobond every year as new projects are put into the pipeline and you can register your interest for ecobond three now.
Other ways to save
Another way to boost the return on your savings is to use peer-to-peer lending websites.
Your money is spread out among customers wanting to borrow. By cutting out the middleman - banks and building societies - the idea is that you get a better savings rate and the borrower gets a better loan rate.
With Zopa you can choose a rate, risk level and time period. The average return is around 7%. Ratesetter also allows you to set the rate presented to potential borrowers and offers a one year bond or you can fund three, four and five-year loans.
The websites aim to minimise risk by spreading your money across a number of borrowers.
However, like mini-bonds your money is not sheltered by the FSCS.
How does it compare to other savings rates?
If you're unsure about investing, or if you simply can't afford to gamble money, compare cash savings rates and traditional savings bonds with lovemoney.com.
Don't forget to make use of your ISA allowance too. You can invest as much as £11,280 a year, with up to half of that in a cash ISA. The remainder, or even the full amount, can be invested in a stocks and shares ISA.
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