Bright yellow signs often signify a hazard warning – and this might be the case when it comes to putting cash in the new app-based fintech firm behind eye-catching adverts offering five per cent on ‘savings’.
The firm, Dozens, still hasn’t officially launched yet – you can only sign up to its waiting list.
However, its app is live and the sheer volume of adverts for it, and number of services it provides, means many will believe it may be worth taking a look at – especially the promise of a five per cent return.
But this is not a ‘savings’ deal, it is an investment involving risk. And what’s important to note is that despite offering many similar functions to a bank, including a current account and debit card, Dozens does not have a banking licence. Instead, it has an e-money licence and investment licence.
Dozens is an app-based fintech with many features – include a map of your spending
What is protected by the FSCS is the cash savings product it offers – which offers no interest (this is not the five per cent bond it is advertising).
Dozens expects you to use this as a step towards investing money you’ve saved, as these cash savings pay no interest, but you can also use it to set money aside regularly.
This money is actually deposited in a client account held with Bank of Scotland, which is part of Lloyds Banking Group.
Therefore this is FSCS protected up to £85,000, but bear in mind if you’re already a Lloyds customer any money saved with Dozens will detract from the value of protection you have with other Lloyds accounts.
Dozens’ app has many of the features that are already ubiquitous among fellow smartphone banks, like being able to round up to the nearest £1 what you’ve spent and save it and set yourself smart budgets, as well as a few other interesting features.
One of these is that it will show you a spending heatmap, showing your spending habits by time and day, as well as literally mapping your spending by location.
It also lets you set ‘fun’ savings rules for yourself – like sticking away a sum of money every time your football scores, it rains or someone tweets.
5% bonds – too good to be true?
Dozens’ advertising strapline asks whether your savings are keeping up with your lunch, but its headline-grabbing five per cent bonds are investments not a savings product in the sense most people understand.
They claim to be FSCS protected up to £50,000, but what actually are they?
Dozens calls them ‘Trust Bonds’, and says they are ‘designed to bear practically no risk’.
It deposits the money invested, plus the five per cent interest, into a separate trustee account where it can’t touch it.
It claims that it’s already built the interest rate into the cost of offering the bonds, so they won’t fluctuate.
The bonds last 12 months and interest is paid monthly on deposits of multiples of £100, with that being the minimum needed to invest.
If you want to sell, you can do that at any time, recouping any interest you’ve already been paid plus your deposited funds.
However, you must sell back all bonds from a single issuance – meaning if you bought 10 bonds for £1,000 during one issuance you can’t just sell two of them to get back £200.
The bonds are issued by Dozens Savings PLC and listed on Nex, a financial technology company and exchange that matches buyers and sellers of bonds, swaps and currencies.
Nex was founded by former Tory Party treasurer Michael Spencer, and was bought in October by CME, the company that owns the Chicago Mercantile Exchange.
Dozens pays the bond issuance proceeds into a trustee account plus the 5 per cent interest, which comes from parent firm Project Imagine’s capital reserves. It in turn raises money from its own investors.
Essentially, the 5 per cent interest bonds are an eye-catching rate to pull in customers being funded from money the company raises elsewhere.
Dozens itself is ‘a UK-based company backed by a Hong Kong investment firm’.
While your money invested in the bonds is protected up to the value of £50,000 in cases of default or poor investment management, you won’t enjoy any protection if the companies you’ve invested in go bust.
Jon Ostler, chief executive of personal finance comparison site Finder, said: ‘Most digital banking companies specialise in one or two things, so it is interesting to see Dozens offer such a wide range of different services.
‘If it works as intended then it will be great for consumers – especially the potential five per cent return on the bond – but this certainly isn’t a risk-free proposition.
‘Currently Dozens is only planning to charge for the investment service, while everything else is free for the user.
‘Until it gets a full banking licence it can’t lend or reinvest customer money, so it remains to be seen whether the business will be economically sustainable in the long term, or if it’ll be forced to start charging more at some point.
‘Time will tell if Dozens can deliver on its promise but it’s likely that some adjustments will be needed in its early stages.
‘However, it is fully regulated and partially FSCS-protected, which might help reassure people looking to invest or open an account.’
One internet forum has someone stating: ‘This is clearly early days for the company (incorporated January 2018), but their five per cent bond promotion does not currently appear to be following the FCA rulebook on promotions being fair, clear and not misleading.’
Dozens reiterated the lines on its website about its ‘Trust Bonds’, and added: ‘We believe in the importance of having a high interest product for people who are just starting to save and experience interest, which is why we’re willing to fund this product from the revenues earned from our other products, like interchange, FX and custody fees.’
What does the FCA say?
We contacted the FCA for clarification about the protections available to customers who might end up investing in Dozens.
We also asked whether the FCA believes the advertisement to be clear and not misleading, due to the fact the five per cent rate appears to be marketed as a ‘savings’ product.
However, it told This is Money that it does not comment on individual firms and their advertising.