Tesco bonds 5.2% 7years

twokcc

Just seen this
http://www.dailymail.co.uk/money/article-1354033/MIDAS-Interest-Tesco-bond-issue-offers-savers-certainty.html

Never bought bonds before,wonder if anyone with good knowledge could advise on advantages/disadvantages that aren't highlighted in article.

Also are they covered by FSA £85K gaurantee?

jimjames

These are bonds issued by Tesco as a listed company not the type of savings bond that banks let you save in. Bonds are a financial instrument sold by companies to raise money, the same as the government sells bonds known as "gilts" to finance its debt. As such they would not be covered by the FSCS guarantee but I believe they would rank above ordinary shares if Tesco was to go bust. As you would expect the Daily Mail article doesn't spell out the dangers and differences between these bonds and a savings account which could lead to a lot of confusion from their readers expecting something they are not.

They are traded on the stock market so their value can rise and fall. If you want to sell before the 7 year period is up then you can but would have to pay dealing costs and may not get back what you paid. You may be better off with a bond fund that invests in a selection of bonds issued by many companies which will diversify and reduce risk.

Advantages: fixed income, fixed capital at redemption

Disadvantages: fixed income should rates rise, capital value rises or falls before redemption, small risk of losing all money (if Tesco fails), dealing costs to buy & sell, linked to fortunes of one company

EDIT - from the DM article the bonds are being issued by Tesco Bank which is somewhat different to being issued by Tesco and I would suggest a little more risky than if Tesco themselves had issued them.

Onawingandaprayer

Not covered by guarantee. Interesting nevertheless...