John Lewis Bond 6 March 2011 at 2:39PM edited 7 March 2011 at 12:46PM in Savings & Investments 32 replies 9.4K views

plunt

This is the discussion thread for the following MSE News Story:

"The bank has launched the top-paying tax-free cash Isa open to all, which tracks base rate for a year ..."

Read the full story:

John Lewis bond is NOT a savings account

Back to original post.

Just saw this (not sure if anyone has posted it already)

John Lewis are going to introduce a new bond.

Term: 5 years
Interest: 4.5%
Bonus 2% (in john lewis vouchers)

so if im not mistaken it is essentially 6.5% (if you shop at john lewis) Now a few questions. If the bonus taxed as its in vouchers. What exactly are the criteria to get to this as is says staff and customers (but think they are refering to their credit card customers.

http://www.bbc.co.uk/news/business-12659718

best regards

P

Rollinghome

plunt wrote: »

J
so if im not mistaken it is essentially 6.5%

Not clear from the article whether the bonus is an an annual bonus of 2% each year or a final bonus of 2% on maturity. If the latter then it's a lot less than 6.5% pa.

alanq

I am not sure about the description "a savings bond" as it is later said "This will be the first opportunity customers will have had to invest directly in the firm." To me a savings bond is a deposit covered by FSCS. This sounds more like a corporate bond which would not be covered in the unlikely event that John Lewis failed.

plunt wrote: »

... says staff and customers (but think they are refering to their credit card customers.

"The bond, with a minimum investment of £1,000, will be available to 1.5 million cardholders and 70,000 staff."

glider3560

alanq wrote: »

I am not sure about the description "a savings bond" as it is later said "This will be the first opportunity customers will have had to invest directly in the firm." To me a savings bond is a deposit covered by FSCS. This sounds more like a corporate bond which would not be covered in the unlikely event that John Lewis failed.

I was thinking the same as you. The BBC have confused the story by referring to it as a "savings bond", which has now become common terminology for a fixed term savings account.

alanq

JLP itself is unclear. http://www.johnlewispartnership.co.uk/Display.aspx?MasterId=fd5fb245-4f3b-4376-8c2d-7a102612bc21&NavigationId=553

" The bond is a new five-year savings product" but "With a combined coupon and voucher rate of 6.5%, the bond offers customers a competitive rate on their investment and a chance to diversify their portfolio of investments. "

The layman might regard "coupon" and "voucher" as synonymous but in the world of corporate bonds "coupon" has a different meaning.
"Coupon rate The coupon rate is the interest rate that the issuer of a bond or other debt security promises to pay during the term of a loan. For example, a bond that is paying 6% annual interest has a coupon rate of 6%."
http://finance.yahoo.com/personal-finance/glossary

JP45

There's a press release from John Lewis which addresses most if not all of the above points:

The bond is a new five-year savings product and has a fixed annual return of 4.5% in cash with a further 2% paid in John Lewis Partnership gift vouchers. At the end of five years the John Lewis Partnership will return all the money invested in full.

With a combined coupon and voucher rate of 6.5%, the bond offers customers a competitive rate on their investment and a chance to diversify their portfolio of investments.

Both the cash interest and the Gift Vouchers are taxable on its face value, therefore Tax will be deducted at the basic rate (currently 20%). Tax will be deducted from the cash interest paid.

John Lewis Partnership Bonds are not protected by the FSCS. The FSCS only covers business conducted by firms authorised by the Financial Services Authority (FSA), the regulator of the financial services industry in the UK, i.e. Banks and Building Societies.

Overall, it seems a fairly attractive offer although the lack of FSCS protection is a concern. Then again, things would have to get pretty dire for a retailer like John Lewis to go out of business over the next 5 years. If the economy nose-dived to the extent that even John Lewis went under then you have to ask yourself what state the banks would be in and whether, in such circumstances, the FSCS guarantee would be honoured and by whom.

plunt

JP45 wrote: »

There's a press release from John Lewis which addresses most if not all of the above points:

I would like to think we forced that press release (doubtful ofcourse)

right thanks for the swarms of people who helped target details on this product to make it clear to everyone

-P

opinions4u

Thanks for digging out the press release.

JP45 wrote: »

Then again, things would have to get pretty dire for a retailer like John Lewis to go out of business over the next 5 years.

If the economy nose-dived to the extent that even John Lewis went under then you have to ask yourself what state the banks would be in and whether, in such circumstances, the FSCS guarantee would be honoured and by whom.

I cannot see the Government stepping in to honour this type of investment, especially where it is now clear that there is no FSCS protection.

Sceptic001

Limiting eligibility to

Current Partners and partnership card and Account Card holders as of 12 February.

is a canny move to boost applications for its partnership (ie. credit) card in the hope of future issues.

jimjames

Rollinghome wrote: »

Not clear from the article whether the bonus is an an annual bonus of 2% each year or a final bonus of 2% on maturity. If the latter then it's a lot less than 6.5% pa.

The press release website has now clarified it

Annual Investment Return

4.5% Cash Interest
2% John Lewis Gift Vouchers

However it has not made very clear that this is a corporate bond not a savings account. To get money back any investor would presumably need to sell on the stock market, potentially at a loss, before the redemption date.
EDIT - now clarified that this is NOT tradeable so once bought you have to keep until maturity.

Sceptic001

jimjames wrote: »

However it has not made very clear that this is a corporate bond not a savings account. To get money back any investor would presumably need to sell on the stock market, potentially at a loss, before the redemption date.

Very similar to the Tesco Bank corporate bond announced recently.

No, unlike a corporate bond, it cannot be redeemed during its five-year term:

The John Lewis Partnership Bond cannot be transferred or redeemed for the life of the Bond

http://www.partnershipbond.com/about.html
Also note that the 2% vouchers are taxable. John Lewis will deduct 20% tax on the whole 6.5% and higher rate taxpayers will need to declare it.