Tesco bond doesn't offer supermarket savings

Tesco's corporate bond is offering 5 per cent a year until 2020, with a minimum investment of £2,000 (John Lawrence)

Tesco Bank is offering a tempting, 5 per cent a year until 2020 in its latest offering.

But don't be fooled into thinking you're getting a safe savings account.

The deal is instead offered through a corporate bond, an investment which brings its own risks, according to Brian Dennehy of FundExpert.co.uk.

"For starters, corporate bonds are not covered by the statutory safety net, the Financial Services Compensation Scheme," he pointed out.

If the company issuing the bond goes bust, corporate bond investors will lose out.

Mr Dennehy says anyone tempted by the Tesco deal should consider corporate bond funds.

"By investing in a wide variety of bonds, the risk of losing cash is reduced," he said.

Returns, although not guaranteed, can also be attractive. L&G High Income offers a yield of 6.6 per cent, for instance.

However, if you really want to invest in the Tesco corporate bond you must subscribe by 21 May with a minimum £2,000. You can do so through most stockbrokers.