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

Base rate

What's the base rate?
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Rate of Return

Profit on an investment, expressed as a percentage of the investment.
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Custodian bank

Learn what a custodian bank is.
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American Depository Receipt (ADRs)

Tradeable assets that let Americans invest in overseas stocks using US laws and dollars.
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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.
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Net Asset Value (NAV)

The value of a company's assets relative to the number of shares it has.
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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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Money weighted rate of return

Learn what Money Weighted Rate of Return or MWRR stands for in finance.
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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.
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