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A guide to investing in councils
A guide to investing in councils

Learn about the important things to consider when choosing to invest in councils on Abundance

Updated over a week ago

What are council investments?

When investing on Abundance you can choose to invest in companies or councils.

Council investments are a way to lend money to a UK local authority (a council) for a fixed period of time in exchange for a return on your investment.

Each council investment will have its own interest rate, term period and repayment structure so it’s important to review each investment individually. Some investments will repay your original investment in instalments over the life of the investment while others will repay in one lump sum at the end (maturity) of the investment.

You can review the details about the specific council investment in the Key Terms and Payments sections.

What are the risks of lending money to a council?

You are making an investment and lending money to a council so it is not like 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 use this as a route to 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 the risks of lending to a council here:

As the investor, it is your responsibility to consider each council investment and the risks in the context of your own financial needs. When Abundance offers an investment on our platform it is not making a recommendation of that investment because we do not provide financial advice. If you are unsure about whether a particular investment is suitable for your needs, you should consult a financial advisor.

Does investing through an ISA affect the risk of the investments you make?

When making a council investment on Abundance you can choose to invest through a General portfolio (a general investment account which is taxable) or through an innovative finance ISA (IF ISA), which is a type of ISA offered by Abundance.

If you choose to invest through an IF ISA with us, the returns on your council investments will be tax free. However, the IF ISA is just a tax-free wrapper or pot, and investing through your IF ISA does not change the terms of the council investments you are making. The choice to invest in specific investments is solely yours to make and the risks of that investment are the same as investing outside of an IF ISA.

Can you access your money once invested?

Council investments are fixed term investments, which means you are lending money to the council for a fixed period of time and therefore you won’t be able to access your money until the repayment date.

In some cases the investment repays you in instalments so you will get back some of your money over time, but in other cases you will only be repaid in one lump sum at the maturity date.

When you invest in an open investment that is currently raising money, you have a 14 day refund period during which you can request a full refund. After this period your money is committed to that investment and your money is effectively lent out to the council and cannot be withdrawn. You should therefore only invest if you are prepared to hold the investment for the full period of the investment.

Can you sell your investment instead?

While you can’t withdraw your investment, your investment is fully transferable, which means it is possible to sell your investment to another investor if you need to get back some of your money before it is repaid.

Abundance has a marketplace when you can put your investment up for sale and see if another investor is interested in buying it. However if there is no buyer interested on Abundance, or if the trading of that investment on the marketplace has been suspended, you may not be able to sell your investment through the marketplace and may have to continue to hold it.

It is up to you to choose the price you want to sell your investment for and you can try to sell your investment for more or less than you originally invested. However if there are no interested buyers at your chosen price, you may need to sell your investment for less than you originally invested and therefore you won’t get back all of your money.

It is important to understand that there is no guarantee you can sell your investment, so you should invest on the basis that you are willing to hold the investment for the full life of the investment.

The impact of interest rates on the value of your investment

The interest rate available on other financial products in the wider market, including new council investments on Abundance, may go up and down over the term of your investment and this can affect the price another investor would be willing to pay if you want to sell your investment.

When a potential buyer is considering purchasing your investment, they may consider the return that they could get on other investments available elsewhere. If a buyer can get a better rate for another similar product, they will want to pay less for your investment in order to receive an effective rate of return on their investment which matches the current market rate. This may mean that you will get back less money than you originally invested when selling your investment.

What are your protections if something goes wrong?

By investing in a council, you become a creditor of that council and the terms of your investment (in the Key Terms and Loan Conditions) set out the council's obligations to you and what they are due to pay you back and when. However, repayment is not guaranteed and it depends on the council's ability to meet the terms of your investment and make the payments owed to you. If a council is unable to pay you as agreed, they will be “in default” of the terms of your investment.

Councils, unlike companies, are not subject to general bankruptcy or winding up rules so they cannot be declared bankrupt and then avoid repaying their debts through this route. As a council has statutory obligations to its residents that it must fulfil, it cannot be declared bankrupt and wound up. Therefore its debt obligations to creditors will always remain even if the council runs into financial difficulties.

Abundance is authorised and regulated by the Financial Conduct Authority, however it is important to understand that The Financial Services Compensation Scheme (FSCS) does not cover investments in P2P loans like our council investments. The Financial Services Compensation Scheme (FSCS) or Financial Ombudsman Service (FOS) also do not cover poor investment performance so if you make a loss due to a council's inability to pay you back, you cannot make a claim to the FSCS or FOS.

As a regulated investment platform, it is possible to make a complaint against Abundance, however this must be in relation to the services we provide rather than due to poor investment performance. You can find out more here.

What is Abundance’s role?

Abundance has a role across the life of your investment but it is important to understand that when you are making a council investment, you are lending money to that particular council and it is that council that must make the payments due to you under the terms of your investment. You are not lending money to Abundance and Abundance doesn’t manage your investments for you.

Abundance acts as the electronic platform through which you can invest in P2P loans from UK councils. Once an investment has been successfully funded our role is largely an administrative one, including:

  • Providing your online account which allows you to view your investment holding and provide services such as the marketplace.

  • Administering the payment of your investment returns back from the council to you.

  • Administering any communications from the council to investors.

  • Facilitating the exercise of rights by investors under the terms of the Loan Conditions, for example, where investors are asked to vote on a change of investment terms by the council you have invested in.

  • If a council defaults on a loan, Abundance will seek to recover the debt owed by council on investors' behalf.

What happens if Abundance goes out of business?

If Abundance were to go out of business, the council you have lent money to will still be obligated to meet the terms of your investment, so there would be no direct impact on your investment.

However the administration of your investment could be impacted, which could cause delays to the payment of your returns or your ability to view and manage your investments held on Abundance. As it is Abundance that provides the marketplace service, you may no longer be able to use the marketplace to look for a buyer which would significantly reduce your options to try and sell your investment if needed.

As a regulated company, Abundance is required to have a plan in place to allow for the orderly wind down of our business if we were no longer able to continue. You can read more about our plan here.

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