Mini-bonds and how risky they are

A mini-bond is a loan from you to a single company, usually a small or unlisted one, that pays a fixed rate of interest and promises to return your capital on a set date. The catch is what happens if the company cannot pay. Mini-bonds are not listed on a stock exchange, so there is often no market to sell them on, and they generally sit outside the Financial Services Compensation Scheme. If the issuer fails, the money is usually gone.

The high interest rate on a mini-bond is the price of that risk, not a sign of a better product. A company that has to borrow from the public rather than a bank is paying for the chance it will not repay. The FCA banned the mass marketing of speculative illiquid securities, including mini-bonds, to ordinary retail investors from January 2021, after the collapse of London Capital & Finance left bondholders facing heavy losses and a government compensation scheme.

This page explains what a mini-bond is, why the returns are so high, how little protection there is, what the marketing ban changed, and where to get help if you lost money.

What a mini-bond is

A bond is a loan. You hand over money, the issuer pays interest, and at maturity it repays the capital. Government bonds, known as gilts, are the safest end of that market: the bonds with the least risk of default are those from high-quality sovereign issuers such as the UK and the larger and wealthier European countries⁷. Corporate bonds sit further up the risk scale, and mini-bonds sit further up again.

The word "mini" describes the size of the issuer and the scale of the offer, not the risk. A mini-bond is typically issued by a smaller or unlisted company that wants to raise money without going through a bank or a stock exchange listing. Because the bond is not listed, it cannot be bought and sold on an exchange in the way a gilt or a large company bond can. That matters enormously if you want your money back early.

Bonds in general carry default risk, which is the risk of the company or government becoming insolvent, along with inflation risk and the risk that interest rates rise over time⁸. Mini-bonds concentrate the first of those risks, because the borrower is a single company with no track record of public borrowing and no exchange on which its debt is priced.

High returns, much higher risk

The relationship between risk and return is the same everywhere in investing: higher potential returns usually mean higher risks, which could lead to the investment going down in value⁹. Higher risk investments tend to move up and down more in the short term but can grow more over the long term¹⁰. A mini-bond inverts the usual shape of that trade-off. It offers a fixed, high rate and the appearance of stability, while carrying the risk of total loss.

Why the high rate? Because the issuer has to pay it. A company that can borrow cheaply from a bank does so. A company that cannot, or that wants to avoid the disclosure a listing requires, turns to the public and pays over the odds. The rate is compensation for default risk, and the higher it looks, the more the market is pricing in the chance of failure.

There is a second trap. A fixed rate that looks generous can still lose you money in real terms. Your original investment will not hold its value in real terms, its buying power, if the interest you are getting is less than the rate of inflation over the investment period¹¹. A mini-bond rate is usually well above inflation, which is exactly why it attracts people, but that gap is the reward for taking a risk that savings products do not carry.

Mini-bonds are also illiquid. Private market investments have some additional risks and are less easy to sell in the short term compared with investments traded on stock markets or bond markets¹². For a mini-bond, "less easy to sell" often means impossible.

Very little protection if the issuer fails

The Financial Services Compensation Scheme covers a range of financial products if a UK-authorised financial firm fails, including deposits, insurance, investments, pensions, mortgage advice and certain other regulated services¹³. Mini-bonds generally do not fall inside that list. The FSCS has said of specific mini-bonds that they were unlikely to qualify as designated investments under its rules, which is the technical reason no compensation was available¹⁴.

That is the single most important fact about mini-bonds. If the issuer goes bust, there is usually no scheme to fall back on, no ombudsman award for the loss itself, and no deposit guarantee. Your claim sits with the other creditors in the insolvency, behind secured lenders, and the recovery is often a fraction of what was invested.

Protection can exist in one narrow place: the advice. If you were advised to buy a mini-bond and that advice was bad, the complaint is about the advice, not the bond. If you pay for regulated financial advice and it turns out to be poor, including if you lose money as a result of bad advice, you can complain and ask for compensation¹⁵. That route depends on there having been regulated advice, which many mini-bond sales did not involve.

Can I sell a mini-bond before it matures?

Usually not, and this is where mini-bonds differ sharply from ordinary bonds. Bonds that are traded can be sold before maturity on the secondary market, and a broker may charge a commission¹⁶. But that market price may be higher or lower than your purchase price, and this will affect the return you receive on the investment¹⁷. A bond's price fluctuates from day to day according to the balance of supply and demand, creating a paper profit or loss, and if the investor needs to sell the asset before maturity to raise funds, there is a risk of capital loss³.

For a mini-bond, the problem is worse: there is often no secondary market at all. The issuer may not have listed the bond anywhere, no broker makes a price in it, and the terms may not allow transfer. In practice, your money is locked up until maturity, and if you need it sooner you may have to sell at a heavy discount to whoever will take it, or not sell at all.

Some bonds also carry embedded features such as "calls", which let the issuer repay the debt ahead of schedule, and that can work against the holder³. A call means the issuer hands your money back early, precisely when the rate you locked in has become expensive for them, and you have to reinvest at whatever the market offers then.

The ban on marketing mini-bonds to ordinary investors

From January 2021 the FCA banned the marketing of speculative illiquid securities to retail investors, and the ban covers mini-bonds and loan notes. Before that, mini-bonds were advertised directly to the public, often through glossy promotions promising fixed rates well above savings accounts.

The ban changed who can be sold these products, not whether the underlying risk exists. Mini-bonds are still listed among unregulated investments², and the FCA has continued work on the wider question of how non-transferable debt securities should be regulated, with a consultation published in April 2021 alongside further details of the LCF compensation scheme⁶.

If you are offered something that looks like a mini-bond today, the marketing route matters. A product that cannot be mass-marketed to retail investors is a signal about who it is designed for and what it assumes about the buyer's ability to absorb a loss.

Lessons from London Capital & Finance

London Capital & Finance plc was a failed mini-bond issuer and is in insolvency⁶. Its collapse is the case that shaped how regulators and the government now treat mini-bonds. Bondholders lost money, and because the bonds were not covered by the FSCS, the government stepped in with a compensation scheme, with further details announced in April 2021⁶.

The complaints data shows the issue has not gone away. The Financial Ombudsman Service recorded 68 mini-bond complaints in 2025/26⁴, and in the fourth quarter of 2025/26 mini-bond cases had a 94% uphold rate⁵. The two official figures for the number of complaints opened do not agree, and the documents do not resolve the difference, so both are given here.

Where the ombudsman finds that wrong advice caused a loss, it can tell the financial adviser or insurance company to put things right, and it may also tell them to pay compensation for any distress or inconvenience suffered¹⁸. The same power applies to pensions and ongoing advice cases: if a consumer lost money through wrong advice, the ombudsman tells the adviser to put things right and may award compensation for distress or inconvenience¹⁹. In banking and payment cases the remedy is similar: if the ombudsman thinks you have lost money, it will tell the financial business to put things right²⁰.

The limit is that this route addresses bad advice, not a bad investment. If you bought a mini-bond yourself, without regulated advice, and the issuer failed, there is generally no one to complain about and no compensation to claim.

Where to get help

If you lost money in a mini-bond, the first question is whether regulated advice was involved. If it was, you can complain to the firm, and if you are unhappy with the response you can take the case to the Financial Ombudsman Service, which can order the adviser to put things right and may award compensation for distress or inconvenience¹⁸. If the complaint concerns a pension transfer or ongoing advice, the same service handles it¹⁹.

If the issuer was London Capital & Finance, the government compensation scheme is the route, and its details were published in April 2021⁶. If no advice was involved and the issuer has failed, your position is that of an unsecured creditor in the insolvency, and recovery depends on what is left after secured lenders are paid.

For free, impartial guidance on investments and on what protection applies, MoneyHelper and the FSCS's own guidance pages set out what is and is not covered¹³. Before putting money into anything described as a bond, checking whether the product and the firm appear on the FCA Register, and whether the FSCS would cover it, is the step that separates a protected investment from an unprotected one.