Money trap

Mini-bonds – should you invest?

Find out about mini-bonds, the risk they carry, and how to keep your money safe.

What is a mini-bond?

There is no legal definition of a ‘mini-bond’, but the term usually refers to a type of investment product. It is essentially a kind of loan you give to an investment company (the issuer). 

For example, you (the investor) buy a mini-bond from the investment company (the issuer). In exchange, you receive a fixed rate of interest over a set period. At the end of this period, the issuer should repay the money from the mini-bond back to you. 

Are mini-bonds risky?

Mini-bonds tend to carry higher risks, but also offer higher rewards. 

The reason for the high risk/reward is because mini-bonds are usually issued by: 

  • Small companies or start-ups
  • Companies that find it difficult to raise funds from institutional investors, or loans from banks

If the issuer’s business fails, you could lose your investment. This type of company could face cash flow problems that delay interest payments. It could also fail altogether and be unable to repay any of the money investors have lent it.

Mini-bonds usually cannot be sold on (unlike with shares or bonds of larger companies). You are usually locked in until the bond ‘matures’, and so won’t be able to exit your investment early.

In summary: you invest in mini-bonds at your own risk. 

Are mini-bonds regulated?

In general, mini-bonds aren’t protected by FSCS or FCA. Businesses don't have to be regulated by the FCA to issue mini-bonds.

However, we do protect ‘investment services’ provided by firms in relation to mini-bonds. 

For example, if an authorised company gives investment advice about mini-bonds, then it must make sure the advice is suitable and in-line with FCA regulations. 

But if you’ve invested in mini-bonds, and the mini-bond issuer fails, it's unlikely we can compensate you for any losses. 

Find out if you can claim


Mini-bond sales

Customers buying mini-bonds often come across sales tactics like these:

  • Adverts promising high returns
  • Being contacted out of the blue
  • Feeling pressured to invest

Mini-bonds can be very attractive, seeing as banks and building societies offer low interest rates. Mini-bonds can often be marketed to seem like safe/deposit-style products, simply offering better returns than conventional savings products.

Should I invest in mini-bonds?

If you are thinking about investing in mini-bonds, it’s a good idea to first get professional financial advice. Especially if you’re not sure about what you’re investing in.

Here are some pointers:

  • Some mini-bonds will be riskier than others
  • Don’t invest money you can’t afford to lose
  • Don’t invest money that you might need before the investment term is over
  • It's generally a bad idea to invest more than 10% of your net wealth in mini-bonds

For more information on mini-bonds, we recommend reading the FCA’s mini-bonds page

My mini-bond issuer has gone bust. What can I do? 

If you’ve invested in mini-bonds, it’s unlikely we can compensate you for any losses. 

So, if the mini-bond issuer fails, you could lose all your money. 

Find out if you can claim


Mini-bond scams 

While mini-bonds can be a legitimate way for a business to raise money, there are also many scams associated with this kind of investment.   

One example is a Ponzi scheme. Ponzi schemes nearly always offer a healthy profit. However, often this ‘profit’ is actually just money from other investors – i.e. they’re not really profits at all. 

Before you invest, be aware of the following:

  • Adverts promising high returns
  • Being contacted out of the blue
  • Feeling pressured to invest
  • Research the business’ reports and accounts

Find out more about how to avoid investment scams on the FCA’s ScamSmart page.

Cryptoassets, crypto coins and cryptocurrency

In October 2020, the FCA has banned the sale of derivatives and exchange-traded notes (ETNs) that reference certain types of cryptoassets to retail consumers.

Cryptoassets – like Bitcoins and other digital currencies – are not protected by FSCS.