Savers and investors looking for a decent return will understandably hold nothing but scorn for the High Street’s measly offerings of around 2%.

With the Bank of England’s recent announcement that inflation continues to hover around the 2.7% mark, one attractive option could be retail bonds, debt products offered direct to the public, some of which are offering fixed interest rates of 5.5+%.

Last week North Sea operator Enquest became the latest company to turn to savers for cash. It follows the likes of Provident Financial and Tesco.

More and more companies are making bonds available to retail investors and rates are competitive, but there are of course risks.

Put simply, the main reason companies issue retail bonds is it is easier to turn to investors to raise cash than to the banks.

The retail bond market only looks set to grow.

Chris Stevenson, product manager at Barclays Stockbrokers, says: “In 2012, we saw a fresh influx of new bonds coming into the market. We seem to have more companies who are looking at fixed income for finance, and there’s obviously investor demand for it with interest rates so low at the moment and a degree of apprehension around the economic recovery.

There were 14 new issues in 2012 raising £1.5bn in value; in 2011 there were six issues at £690m.

Stevenson expects steady growth in this asset class in 2013 but not necessarily stellar growth.

He says: “The economic conditions we have now will favour the retail bond market, and I think this will be maintained. I don’t expect there to be a 2% hike in interest rates, so most of the economic movement will be affecting capital growth and equities – I don’t see this changing the picture significantly for fixed income.”

As the hunt for yield intensifies, the onslaught of big household names issuing bonds at attractive rates will no doubt make investors sit up and take notice.

Danny Cox of Hargreaves Lansdown, says: “You can understand the attractions of retail bonds: an interest rate of typically over 5.5% and a return of your capital, backed by a high profile company such as Eddie Stobart or Tesco Personal Finance, but there are risks.

“It’s important to understand the differences between investing in a retail bond and saving in a savings account or fixed rate bond.

“When you invest in a retail bond you are lending money to a company. If the company runs into trouble, they might not pay you the interest you are expecting or worse, you may lose your money if they go bust. Savings accounts are protected by the Government up to £85,000 per person per institution.

“Retail bonds are for a fixed term. You have to decide if the interest rate payable is a good deal for the term selected. 5.5% might look good now but could look poor value in five years.

“If you want your money back midterm, you have to sell your bond. You may receive less than your investment if interest rates rise or of course more if interest rates fall.”

One concern is investors diving in with little knowledge or without the necessary research into a company. These investors may be effectively accepting terms and conditions that they may not fully understand, and may fail to understand whether the bond being offered is on terms which are attractive compared to the risk.

Institutions such as pension funds, which normally buy corporate bonds, do huge amounts of due diligence and risks assessments and then only agree to lend the money on terms acceptable to them, which still works out cheaper for the company and often profitable for the bond holder.

A smaller investor may not be able to demand special terms, but there are ways to minimise risk by doing research.

So what should savvy investors look out for? As retail bonds are secured against a company as a whole, rather than specific assets like property, if the company you are investing in runs into trouble, you may find yourself in a long line of people demanding their money back.

Understanding a company’s business structure, growth potential, market share and financial bill of health requires expert eyes.

Stevenson says that when looking at a company with a view to buying its bonds, investors need to be confident in the strength of the company as a whole – and this means doing their homework.

“My advice is that clients have to understand the risk profile of the bond issuer. That’s not always necessarily about the security of the debt issue but also the rating it gets from credit ratings agencies.

“Then a client needs to look at the brand and the business model. They also need to look at what coupon is being offered, what is the return for redemption, are there any complexities involved: is it index-linked and so on?

Investors who are not confident selecting just one company are advised to look into investing in a bond fund.

Cox advises: “In my view investors who want exposure to corporate bonds should invest through a fund, which is managed by a fund manager. Typically there are in excess of 100 holdings and therefore the investment is diverse. The fund manager will also trade holdings to improve the returns or reduce risk. The Jupiter Strategic Bond fund is a good example and is accessible for as little as £50 per month, with tax free returns in an ISA.”

Stevenson is excited about prospects for the retail bond market in 2013 and expects a more varied selection of issuers to enter the market.

He says: “EnQuest issuing the first oil company bond in this recent wave of new issues is interesting and we may see more oil and gas companies issuing bonds as a result. I think it will be nice to see a wider spread of sectors issuing bonds this year. It’s an exciting marketplace at the moment, and if appetite for bonds continues I think it will be a healthy marketplace.”

If you do invest in retail bonds, remember that bond coupons are taxed as income and it is important you consider tax wrappers to protect your money from the taxman.