Risks of our council investments
Estimated reading time: 2 minutes
What are the key risks?
When lending money to a council through a local authority security it is important that you’ve read and understood the key risks involved before making an investment.
1. Your capital is at risk and returns are not guaranteed
- You are making an investment and lending money to a council. This is not a savings account. If the council runs into difficulties, there may be delays to receiving your interest or getting your money back.
- Unlike a company, a council cannot be declared bankrupt and then avoid repaying its debts. However, councils can still be insolvent in a general sense, for example where its liabilities exceed its assets and revenues, and this may prevent or delay payment on your investment. You can learn more about Abundance’s credit assessment of councils and the historic levels of defaults by council loans here.
2. This is a fixed term investment
- Our council investments are long term. You may not be able to get your money back early so you should be prepared to hold the investment until it ends.
3. If you try to sell your investment, you might not get back all of your money
- You can look to sell your investment through the Abundance marketplace, but there is no guarantee you will be able to sell, or find a buyer at the price at which you are willing to sell.
- The interest rates available on other financial products may go up and down over the term of your investment. This may affect the price another investor would be willing to pay and if interest rates rise, you may not get back all of the money you invested if you need to sell.
4. Abundance could fail
- If Abundance were to go out of business the administration of your investment could be disrupted and you may be prevented from selling your investment. We have plans in place to ensure the payments on your investments continue to be administered, but these plans may not work in a disorderly failure.
5. You are unlikely to be protected if something goes wrong
- The Financial Services Compensation Scheme (FSCS), in relation to claims against failed regulated firms, does not cover investments in P2P loans like our council investments.
- Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA-regulated platform, FOS may be able to consider it. Learn more about FOS protection here.