Read on for all the details of our 5% p.a. fixed interest bonds.
When you first hear it, it sounds impossible. It’s understandable to feel that way. Since 2008 interest rates in the UK have been stuck at historic lows. In fact, if you’re under thirty years old, it’s likely you’ve never known interest rates over 1%.
There was a time however, not so long ago, when 5% p.a. used to be the accepted ‘risk-free rate’, i.e. you could buy some of the safest bonds like the US Government’s Treasuries at 5%. So, as part of our mission to help everyone make the most of their money we set out to develop financial products that make high interest more accessible.
At Dozens, we are always thinking about two types of people – those struggling to save (people on the journey from Spender to Saver), and those who already have a chunk of savings but are looking for the best options for it (people on the journey from Saver to Investor). Within the app structure, the Save section, along with Track, is the one that tries to help people put money aside through the use of budgeting, smart rules such as ‘save for a holiday every time it rains in London’, etc.
This is also the section where we want to reward people once they have managed to save. If in future we are able to become a bank, we could do this through FSCS protected savings accounts where, in a challenge to the banking status quo, we would pass on the majority of the earnings from people’s savings back to them. But as we are not a bank, we have had to think innovatively about how to incentivise a new generation of savers in the meantime – without exposing them to risk.
As soon as the word ‘risk’ is shown alongside a financial product it is an immediate barrier for many (and quite rightly so for many early stage savers). To address this entry barrier, we wanted to create a product that was risk-free, liquid and offered high interest – almost like a cash back for not spending, rather than for the opposite as most other financial service providers seem to offer. And here we have it, our 5% p.a. fixed interest bonds.
Found in the ‘Save’ section of our app, the 5% p.a. fixed interest bonds are our first proprietary financial product, designed to bear practically no risk. When bonds are purchased dozens deposits the money invested plus the promised interest, into a separate trustee controlled account (where we can no longer touch it). These bonds are not regulated by the FCA.
How are we able to do this? By simply treating the 5% as a cost of building an entire offering around savers. Why? Because we believe in the importance of having a high interest product for people who are just starting to save and experience interest, which is why we’re willing to fund this product from the revenues earned from our other products.
• Our 5% p.a. fixed interest bonds last 12 months and the interest is paid monthly. As the interest rate is fixed, it will not fluctuate in different market conditions.
• With these bonds you can start earning interest with as little as £100 by buying one bond. And anything above that needs to be a multiple of £100.
• Should you wish to take your money out before the 12 months are up, you can sell your bonds to us at any time. You will receive all your money back, and the interest you’ve already been paid won’t be affected. For example, if you bought £1000 of bonds on 1 January and on 15 April you need the money, you can sell back your bonds, get all your money back and keep the interest from Jan to March that you’ve already been paid. You won’t receive interest for April as you did not complete the whole month.
For logistical reasons, we will require you sell back all of your bonds from a single issuance. It cannot be a fraction of what you purchased. For example, during that bond issuance you purchased 10 bonds – £1000 worth – but now you need £200. You cannot just sell 2 bonds to us, you must sell all 10 bonds back to us at once. You will be selling the listed bonds to our holding company Project Imagine Ltd.
• At the moment we have not set a maximum for how many bonds you can buy, however we do have a bidding system in place that prioritises smaller amounts.
We have earmarked funds for issuing at least £7m of fixed interest bonds in issuances of £100k–£1m. We cannot sell more than we have each time. These bonds have been designed to give early stage savers the option of purchasing a higher return financial product with practically no risk. We want to ensure the 5% p.a. and the accompanying protection, can be enjoyed by as many people as possible. So we created a bidding system.
In the Save section of the app tap ‘Add a bond’, then follow the bidding process, stating the amount you’d like to buy. It only takes a few minutes. You can place one bid for each issuance. You have until the bid closing date to bid. You can change the amount at any time until then.
When bids are closed, we will rank all bids by size, prioritising smaller amounts. For two or more bids of the same value, the bid that came in first will be of higher priority. We will issue bonds in the above order of prioritisation until we have reached the £1m issuance limit (details below). This is the cut off point, bids beyond this will be unsuccessful.
So what this means is that we don’t set the maximum amounts, our customers do, i.e. for a £100,000 issuance, if you subscribed for the full £100,000 and there was no other subscriptions, your bid would be successful.
• The bonds are listed on NEX and have proper documentation governing their sale.
• They are ISA eligible. When setting up, you have the option to choose between an ISA (stocks & shares) or a General Investment Account (GIA). You can open a new ISA with us if you haven’t already opened a stocks & shares ISA with another provider in the same tax year. In time you may be able to transfer an existing ISA to us but we don’t offer this yet. Note that we cannot provide you with tax advice, as everyone’s tax status is unique to them and depends upon your individual circumstances. Please also note that your tax status and tax treatment of products may change over time.
Remember we said we also think about the Saver to Investor journey. So, while the 5% p.a. fixed interest bonds will be limited in issuance volumes and will remain targeted at small savers, we are also working on a similar bond with no issuance restrictions, but a higher minimum investment size, for the Invest section of the app. Let’s call these the ‘Emerging Market (EM) bonds’.
These ‘EM bonds’ will be offered to those who are able to bear higher risk and have larger amounts to invest. Just like we are looking to give anyone with £100 the opportunity to purchase a product they normally can’t, we also want to offer a product to people who have £10k plus and currently aren’t getting the same returns as those with £1m+. That’s why we’ve come up with a structure where we purchase high interest bonds at larger amounts and create new smaller, more accessible bonds, with their own NEX listing and security. In this way we give you access to absolute-return seeking investment opportunities usually only available to those with £1m+.
This section is only accessible after a customer has completed a suitability assessment to determine their knowledge, experience and financial security to ensure we’re acting responsibly and only offering financial products suitable to them. We are working through final details on these and will release more details about these investment bonds in the coming weeks. Please note the EM bonds will not be regulated by the FCA.
Meanwhile, there are already 16 thematic strategies on our Invest shelf for anyone with the appropriate risk appetite, liquidity and more than £1,000 to invest.
Well, there’s the fact that financial institutions can be very traditional with rigid product silos that make it extremely hard to innovate financially. Even the newer fintechs, while they are able to innovate on the tech, are still not motivated enough to solve the financial problem. Whether old or new, they are all relying on your debt for their profit. So they tend to innovate on things to do with spending and credit rather than saving.
And to be honest – it’s bloody hard. It’s taken an incredible amount of hard work from the team and is not something a business would do unless it truly cared about financial equitability and innovation.
Why do we do it? Because financial institutions make a huge amount of money from your deposits, and we think it’s time you were offered a fair return.
If you’re interested in knowing more about the current financial system and what we think needs to change, check out our #Questionyourbank series
They can be found in the Save section of our app. Download the app and complete the signup process to open your Dozens account.
You may also want to check out this blog post that tells you what to expect from the sign up process.
Nope. No smallprint. It’s all here.
Please do shout if you have any niggling queries. Not only will we be happy to help but it will help us make this article the most informative it can be
Article amended 28 January 2019 — Detail added on the difference between Trust bonds and EM bonds.
Article amended 20 March 2019 – Detailed added about bond protection.