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

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.

Dirty price

The total price payable on the purchase of a gilt. It’s calculated as the clean price plus accrued interest.

DMO

The United Kingdom Debt Management Office. It’s an executive agency responsible for managing the government’s debt and cash needs, primarily through issuing gilts and Treasury bills.

Key Information Document (KID)

A document issued by an investment fund to help investors determine if it's the right fund for them.

Technical Analysis

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

Fundamentals

The data or information that is likely to impact a company's stock price.

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.

Costs and Charges

The money you pay when investing.

Equity ETF

An exchange-traded fund that is comprised of a set of stocks.

What is a bond?