What is a 'bond'? Definition & meaning

Learn what a bond is

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

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

More terms

index-linked gilts

Gilts where the dividends and principal repayments are related to movements in the Retail Prices Index (RPI). This is as opposed to a conventional gilt, where the dividends and principal repayments are fixed in nominal terms.

S&P 500

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Coupon

Also called a dividend, this is the fixed annual interest paid to gilt holders. It’s usually paid in two equal, semi-annual instalments and expressed as a percentage of the nominal value of the gilt.

UK Treasury bill

A debt instrument issued by the UK government with a maturity of less than one year.

Unicorn

A startup valued at over £1 billion. They are rare, hence the name.

Interest Rate

The amount a lender charges for lending your money, or a borrower pays you for borrowing your money.

Yield

Income from an investment as a percentage of its current price.

Inflation

The increase in the prices of goods and services over time, and the process by which money loses its value.

Venture Capital Trust (VCT)

A listed company run by a fund manager, investing mainly in private companies.e.

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What is a bond?