Bond definition

What is a bond?

A bond is basically a loan you give to a company or government. In return, they agree to pay you regular interest (called a coupon) and give your money back at the end of the term (known as the maturity date).

Different types of bond

• Government bonds (like UK gilts or US Treasuries) are usually lower risk. They’re seen as safer because they’re backed by entire economies – but government bonds from more stable countries like the UK or US are often seen as the lowest risk.
• Corporate bonds are riskier but may offer higher returns. They’re riskier because less has to go wrong for an individual company to default on their debt obligations.

If interest rates go up, bond prices usually go down – and vice versa.

So, when you invest in a bond, you’re not buying part of a company – you’re lending it money, and (hopefully) getting a steady return in exchange.

Bonds are often seen as more stable than stocks, and they’re used to add balance to an investment portfolio.

Capital at risk. All investing should be long term. The value of your investments can go up and down, and you may get back less than you invest.