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

Stock Exchange

A physical/digital place where stockbrokers and traders can buy and sell securities.
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Dividends

Find out what dividends are and how they can contribute to the growth of your investment portfolio.
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Clean price

The quoted price of a gilt, which excludes accrued interest
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Time-Weighted Rate of Return (TWRR)

A return calculated over the time period invested, that excludes extraneous elements, such as deposits to and withdrawals from the investment accounted.
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Running yield

The annual interest payment (dividend) divided by the current market price of a bond.
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Leverage

A method of trading using borrowed money that usually involves a very high level of risk.
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Xetra

A trading venue operated by the Frankfurt Stock Exchange.
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Know Your Customer (KYC)

A legal requirement for financial firms to understand exactly who their customers are. Used to prevent money laundering and terrorist financing.
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Costs and Charges

The money you pay when investing.
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