Is it worth purchasing a retail bond that pays 75 percent?

Belong, a care village operator, has released a new bond that looks appealing, but what are the risks and how do retail bonds operate?

The interest rates on popular savings accounts are surpassed by a new retail bond that has been introduced that pays a 7.5 percent coupon.

After Chase increased its easy-access rate for new customers, the best savings account now pays 5%.

Investors seeking consistent income and savers tired of declining interest rates are likely to be drawn to Care Village operator Belongs' 7.5 percent bond.

For a predetermined amount of time, retail bonds pay a fixed interest rate known as the "coupon". They are issued by businesses and nonprofit organizations hoping to borrow additional funds from investors.

However, there are risks associated with retail bonds, which makes them different from savings accounts. We examine the risks associated with retail bonds and the operation of the Belong bond.

What is the process for the Belong retail bond?

Investors will receive a 7 percent interest rate every two years until the Belong bond matures in 2030. The offer period is anticipated to end on June 30 at 12 p.m.

In 2018, the care village operator raised £50 million, and this is their second bond issuance.

You can purchase the retail bond through brokers and wealth advisers, Interactive Investor, AJ Bell, or Hargreaves Lansdown. Subscriptions start at a minimum of 500 and increase by 100 each time. Each year on January 7 and July 7, interest payments will be made; the first one is due in January of next year.

It is anticipated that the new bonds will be made available for trading on the regulated market of the London Stock Exchange as well as through the electronic Order Book for Retail Bonds (ORB) on July 8, 2025.

That being said, what is Belong? Belong is a charity that was founded in 1991 and currently operates eight care villages in northern England, with a ninth site scheduled to open. Two-thirds of the more than 1,000 elderly people it serves suffer from dementia.

Because the funds raised will have a positive social impact, Belong claims that its bond will appeal to ethical investors. The nonprofit claims that its operations are extremely sound, with 65 percent of its clients being privately funded, an occupancy rate of 96 percent above average, and revenue that has nearly doubled to 51 million over the last five years.

"With a 7.5 percent yield, it is higher than the 4 percent yield from gilts maturing in five years and higher than the 5.5 percent yield that the safest sterling investment grade bonds currently yield," says Sam Benstead, lead for fixed income at Interactive Investor.

Investors should conduct independent research on the bond issuer's creditworthiness because a yield of 7 to 5 percent places the bond in the high yield or "junk" bond category.

You can learn more about investing on the Belong bonds website. Before you invest, be sure you understand the risks associated with retail bonds, which we describe below.

Which risks are associated with retail bonds?

Let's start by examining the distinctions between retail bonds and savings accounts. The Financial Services Compensation Scheme (FSCS) insures up to 85,000 per person per banking license in the event of a collapse, protecting funds held in UK savings accounts.

However, the scheme does not cover retail bonds. Therefore, there would be no assurance that investors would get their money back in the event that the issuer failed.

Head of investment analysis at AJ Bell Laith Khalaf tells MoneyWeek: "Although retail bond headline rates may be very alluring, there is no such thing as a free lunch when it comes to investing, and higher interest rates typically indicate greater risk.

Investors must take into account both the return on their investment and the return of their money. You risk losing all or part of your capital, along with any unpaid interest, if the business you lent money to fails.

According to him, it is essential that before purchasing bonds, investors understand the company's (or charity's) financial situation, which can be found in their accounts, particularly the balance sheet.

"If your retail bond does not fully repay your capital, you have no recourse to the FSCS," Khalaf continues. Instead of treating retail bonds as a high-interest savings account, which they generally don't, consumers should treat them as an investment, which entails capital risk.

Although retail bonds, such as the Belong bond, carry risks, it is important to note that they are not "mini-bonds," the promotion of which has been prohibited by the Financial Conduct Authority.

Investors can rest assured that the stock exchange's requirements have been fulfilled because Belongs retail bonds will be traded openly on the London Stock Exchange (LSE).

According to Benstead: "It can be wise to entrust bond selection to an expert, like through an actively managed fund, when considering bonds with such high yields. In addition to spreading risk across various industries and maturities, a professional fund manager will have a staff of credit analysts.

What is the Retail Bond Order Book (ORB)?

In February 2010, the LSE launched the Order Book for Retail Bonds (ORB), a special bond platform for individual investors.

Bonds are typically traded in lots of 100,000, making it nearly impossible for the typical investor to purchase a custom portfolio. The majority of issues, however, can be traded in lots as low as 100 on the ORB.

The market hasn't been particularly enthralled with the ORB. New issues stopped coming after a brief surge in trading, though some businesses still use the platform.

Companies that have used the ORB in recent years include LendInvest (paying 11.5 percent through October 3, 2026) and International Personal Finance (bond maturing on December 12, 2027, and paying 12 percent annually).

See Also London Stock Exchange, Bank of England.