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John Lewis launches top-rate five-year bond

Customers earn 4.5% interest, plus 2% in vouchers

John Lewis' flagstore in London

John Lewis intends to raise £50m from its customers and staff, rather than banks and other financial institutions. The new bond, which is restricted to Partnership and account card holders, pays 4.5% annual interest, plus 2% in vouchers. 

High interest return

The new bond pays the equivalent of 6.5% a year, although 2% has to be spent in store. Restricted to card-holding staff and customers, it is available from 7 March 2011 to 11 April 2011, but applications might close earlier if the £50m target is met quickly. Customers can invest up to £10,000 each, in £1,000 multiples.  

Charlie Mayfield, Chairman of the John Lewis Partnership, said: ‘For many years the Partnership has raised finance via corporate bonds and bank lending. We want to explore alternative ways of raising funds as part of the Partnership’s borrowing programme, and to reach out to the retail investor. With interest rates and yields close to historical lows we believe our cardholders and Partners will welcome a competitively priced, innovative product of this nature with the added comfort of the John Lewis Partnership brand and reputation.’

Tax deducted

The 6.5% total is taxable, and basic rate tax at 20% will be deducted at source from the cash interest and the value of vouchers issued. This reduces the net rate for standard rate taxpayers to 5.2%.

Best Rate five year fixed-rate accounts currently pay up to 4.9% before tax. The best five year cash Isas currently pay 5%, tax-free. 

No FSCS cover

Although the future of John Lewis is pretty secure, investors should note that the bond is not covered by the Financial Services Compensation scheme, which only takes in FSA authorised institutions, such as banks and building societies.

pound coins

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