LendInvest's 8.25% APY Bonds: Are They Really Good?

LendInvest, as an alternative real estate lender, is offering bonds that provide an annual return of 8.25%. These bonds offer higher interest payments than savings accounts and certificates of deposit. Set to mature in 2030, these bonds were launched during a period when the Federal Reserve was lowering interest rates.

Investors must invest at least £1,000 (approximately $1,337) to purchase retail bonds. After that, transactions can be made in increments of £100. However, while an annual return of 8.25% is exciting, is this high rate really a good deal?

Retail bonds do not have the same level of security as bank accounts. In many countries, banking regulations protect your bank accounts up to a certain amount. If a financial institution goes bankrupt, account holders usually get their investments back. However, there is no such guarantee with retail bonds. If the bond issuer goes bankrupt, you could lose your invested amount.

Investors looking for high returns should have a good understanding of the issuer's financial profile. Small firms carry a risk of bankruptcy, while large companies like Apple are generally considered a safer investment in terms of bonds. Higher annual return rates are associated with increased risk.

LendInvest's 8.25% annual return bonds may seem like a good opportunity for some investors, but the company's bond issuance history is an important indicator. The company previously had bonds offering a 5.25% annual return in 2017, which matured in 2022.

Furthermore, with the Bank of England having a base interest rate of 0.25% in 2017, compared to the current 4% savings rate, it becomes clearer why LendInvest needs to offer higher interest rates.

Additionally, while an 8.25% annual return may look higher than most banks, some investors might achieve better performance by investing this amount in index funds or growth stocks. This is because the funds invested in retail bonds cannot be used for another asset.

However, investors are not stuck in LendInvest's bonds. The company will apply for its new bonds to be traded on the London Stock Exchange's Retail Bonds Open Book market.

It is also important to remember that bond interest is considered ordinary income for tax purposes. While an 8.25% annual return may seem high, investors should consider the tax implications to calculate the true yield of this investment.