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

Value Investing

The art of buying shares which trade below their value, according to the analysis of the value investor.

After-hours trading

Trading outside of a stock exchange's opening hours.

Year to Date (YTD)

A period of time that starts with the first day of the current calendar year and ends with today.

Margin call

Learn what a margin call stands for in financial terms.

Base rate

What's the base rate?

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.

Ponzi Scheme

A form of fraud designed to lure new investors, and pays the earlier backers by using the new investors' money.

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.

Growth stocks

These are stocks in companies that are considered to be “growing”. These companies may be delivering new products and services, or entering new markets.

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. Registered in England and Wales (no. 09797821).

What is a bond?