Investors looking for a home for more than £1,000 can buy special bonds paying market-leading returns from high street names like John Lewis, Tesco Bank and Lloyds TSB.
The bonds pay a better rate before tax than other similar financial products sold through banks and building societies.
The drawback is the John Lewis bond falls outside of the safety net offered by the Financial Services Compensation Scheme that underwrites up to £85,000 deposited with a bank or building society.
The nature of the bond also means investors cannot trade the paper or put the package inside an ISA – unlike the one offered by Tesco Bank and Lloyds TSB. Effectively, the John Lewis investment is ‘dead money’ until the end of the term, while the others can be bought and sold through stockbrokers and wealth managers.
The John Lewis bond asks investors to effectively lend the firm between £1,000 and £10,000 for five years with the promise of a fixed rate return of 4.5% in cash and 2% in gift vouchers that can be spent at any John Lewis or Waitrose store.
John Lewis wants to raise £50 million to fund business expansion from the bond. The offer is only open to staff and loyal customers.
Investing the minimum £1,000 earns £65 a year before tax – with £45 as interest and £20 paid as vouchers. After basic-rate tax the bond pays £52 – £32 in interest and £20 in vouchers. The investment is returned in full after five years.
Best buy for many investors would seem to be the Lloyds TSB’s corporate bond – paying 5.5% fixed for five and a half years until September 2016. The minimum investment is £1,000 – giving a tax-free return of £55 each year.
The Tesco Bank bond matures in August 2018 and pays 5.2% gross each year with a minimum investment of £2,000, making the tax-free return of £52 per £1,000 invested.
Both the Lloyds and Tesco bonds can be held in an ISA or self-invested personal pension (SiPP), which means unlike the John Lewis offer, the returns are tax-free.
Other options for those with £1,000 or more to invest include 4.9% from Aldermore Bank, 4.85% from The Principality Building Society and 4.65% from Saga, with all returns paid gross on five-year bonds.
Anyone with £10,000 to invest can pick up up a fixed 5% gross on Close Brothers’ three-year bond.
