Renewable energy company Good Energy has launched a “mini-bond” that pays 4.75pc for investors who tie up their money for four years, with a higher 5pc rate for its customers.
The company, which is listed on the Aim junior stock market, supplies electricity in the UK from renewable energy sources. It aims to raise £10m from the bonds.
The money will be used to grow the company, particularly in areas such as energy storage, electric vehicle networks and green business consultancy. Investors have until June 5 to apply and can invest in multiples of £250.
The bonds will offer a fixed rate of interest and must be held to maturity as, unlike the company’s shares, they will not be listed on any market.
The best-paying four-year fixed-rate savings accounts, from Paragon Bank and Ikano, pay 2pc. However, mini-bonds are risky and investors could lose their money. The investments lack the protection available on regulated savings accounts.
If the firm fails, investors are likely to lose all their capital and interest. They will have no recourse to the Financial Services Compensation Scheme (FSCS), which protects deposits of up to £85,000 per financial institution.
Several mini-bonds have failed already.
The term “mini-bond” is used to distinguish these bonds – which, once issued, cannot be traded – from “retail bonds”, which are traded on the stock exchange in the same way as company shares. Retail bonds are generally safer because the rules are much more stringent.
Good Energy launched its first mini-bond, paying 7.25pc interest, in 2013. It raised £15m. Investors in that bond can roll over their existing investment into the new bond.