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

Technical Analysis

Examining price movements of shares and other assets, and trying to predict how they will move in the future.

Beta

Learn what Beta stands for in finance.

Clean price

The quoted price of a gilt, which excludes accrued interest

Conventional gilts

Gilts where the dividends and principal repayments are fixed in nominal terms. This is as opposed to an index-linked gilt where the dividends and principal repayments are related to movements in the Retail Prices Index (RPI).

Maturity date

The date on which a gilt is redeemed and the gilt holder receives the repayment of the nominal amount and final dividend or coupon payment.

Zero-Sum Game

A situation in which one person's gain is another's loss.

Zero coupon bonds

What is a zero coupon bond?

Net asset value

Mutual funds and investment trusts are priced on their net asset value (NAV).

Unicorn

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

Freetrade does not provide investment advice and individual investors should make their own decisions or seek professional advice. The value of investments can go down as well as up and you may receive back less than your original investment. Freetrade is a trading name of Freetrade Limited, which is a member firm of the London Stock Exchange and is authorised and regulated by the Financial Conduct Authority (FCA reg. no. 783189). Registered in England and Wales (no. 09797821).

What is a bond?