What is a bond?

Learn what a bond is

When governments and companies want to raise money, they’ll often do so by issuing bonds.

Bonds are effectively promissory notes. In return for buying bonds, investors will receive the money they put in back, plus interest.
Investors usually buy bonds because they promise a fixed return, in the form of interest, that is supposed to be paid back at one or several preset dates.

As the interest rate paid on bonds is usually fixed and pre-set, it’s common for bonds to be referred to as ‘fixed-income’ investments. Today, not all bonds have a fixed interest rate. Many are now issued with variable or floating interest rates, which change over time.

Deep dive: What are bonds and why investors buy them?

More terms

Arithmetic Mean

The sum of a set of numbers added together and then divided by the total amount of numbers in that set.
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Diversification

An investment strategy in which money is put into a variety assets.
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Limit order

Learn what a limit order is and how to use it to make the most of your portfolio.
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Accrued interest

The interest earned on a gilt since the last dividend date. When buying a gilt, the buyer pays the accrued interest at the time of a transaction to the seller in addition to the clean price of the gilt
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Securities

Bonds and stocks.
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Time Value of Money

The concept that money you have now is more valuable than the same sum in the future.
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Nominal amount

The face value of a gilt. It represents the amount that will be repaid to the holder at maturity and is also used to calculate the dividend or coupon payment.
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Junk Bond

A form of debt investment that carries higher risk because of the likelihood that the issuer will default.
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Alpha

The percentage by which an investor outperforms a relevant benchmark.
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