Coop Share Bonds or alternatives

DarkEyes

Firstly, I understand that these carry an element of risk, but given the low interest rates currently available, they seem like they might be worth a punt. I was just wondering if people had any strong views on them, or could suggest better or similar alternatives?

eskbanker

A previous thread about them was generally unimpressed: https://forums.moneysavingexpert.com/discussion/5478729/coop-development-bonds-are-they-a-good-bet

They seem to lack the protection of savings and the upside potential of most investments, so fall between the stools, but regarding alternatives, it's not really practical to suggest anything without more knowledge of what you're hoping to achieve and what your attitude to risk is....

bowlhead99

DarkEyes said:

Firstly, I understand that these carry an element of risk, but given the low interest rates currently available, they seem like they might be worth a punt. I was just wondering if people had any strong views on them, or could suggest better or similar alternatives?

Well, if they have to offer high interest rates (e.g. 3-4% is about five times what some retail banks with full FSCS protection would pay, and 30-40x the bank of England base rate for overnight cash) it is not because they want to offer you a great deal, it's because they know they won't raise as much money from investors as they need if they were to offer less - which comes from the fact that investors would naturally be cautious about putting money at risk with no protection offered by the financial services compensation scheme if they go bust or find a reason not to pay you back the interest or the principal or both.

There are a whole range of things that could be 'similar alternatives' if an alternative involves lending someone money without knowing if you will get it back. If you think you have enough knowledge and information to competently evaluate the prospects for their business and are happy with the level of certainty (or uncertainty) around whether you'll see it again, you might be happy to take the gamble. 

Alternatively if you were the kind of person who is happy to take a gamble to hopefully make a few percent a year more than a cash deposit and didn't mind your capital being at risk, you could buy shares in an investment fund, or a big company like Unilever (the latter may pay you 3% a year in dividends and hopefully the share price will go up over time, but of course it may do the opposite instead).

Obviously investing in just a single company is a high risk and is not close to the risk-free status of depositing money in an FSCS protected bank account, but some may think it may be less of a risk over the very long term to invest in an ownership share of a huge international consumer products business with $50bn annual sales than to lend money to a local cooperative in the hope that they don't struggle to repay you in three years time.

eskbanker said:

A previous thread about them was generally unimpressed: https://forums.moneysavingexpert.com/discussion/5478729/coop-development-bonds-are-they-a-good-bet

They seem to lack the protection of savings and the upside potential of most investments, so fall between the stools, but regarding alternatives, it's not really practical to suggest anything without more knowledge of what you're hoping to achieve and what your attitude to risk is....

Ah, I see I replied to that old thread too. The interest rate was perhaps relatively worse, in the context of prevailing market rates for cash deposits, back then. Is it a better deal now ? Perhaps not, given they made a loss of over £20m last year in writing off the remainder of their energy business having sold it on to Octopus. What does the future hold? You don't really know. Will you get your money back? Well, of course you might, and then you'll think it was much better than to have put the money into a cash deposit account. Whereas if you don't, you're unlikely to be very grateful that they offered you a nice-sounding rate and that you ignored the '100% loss potential'.

DarkEyes

Thank you both for your comments. Having had a quick skim through the 19/20 accounts, they don't seem to be in a great financial position, and that is before the financial impacts of Covid are known.
In terms of risk, I am pretty conservative, so maybe a mixed investment is a better bet.