What is a Bond

A plain guide, in seven chapters

What is a Bond

What happens to your money when you lend it to a government or a company, and what can go wrong.

Start with chapter I

Ian J Hart FCSI IMCChartered Wealth Manager

Contents

  1. IA bond is a loan4 minThe whole idea, in one worked example.
  2. IIWho else is lending3 minThe bond market is not one thing.
  3. IIIGilts, in depth4 minLending to the UK government.
  4. IVCorporate bonds4 minLending to companies, strong and weaker.
  5. VHow yields work5 minWhy price and yield move in opposite directions.
  6. VIBond funds or single bonds4 minOne loan, or a share of hundreds.
  7. VIIWhat can go wrong4 minInterest rates and inflation: the two big forces.
  8. App.Where to invest2 minThe accounts people use, and a plain list of platforms.

Before you beginCapital at risk. The value of investments and any income from them can fall as well as rise, and you may get back less than you invest. This is information, not advice.

How this guide works

What is a bond?

A bond is a loan. You lend money to a government or a company for a set time. In return it agrees to pay interest at set intervals and to repay the original sum at the end, unless the borrower cannot pay. You can also sell a bond to another investor before then, at whatever price it fetches on the day.

How this guide works

That one idea is where the guide begins. Chapter I explains it with one worked example. Every chapter after that adds a layer: who else is lending, what the UK government pays, how companies differ, why prices move, and finally what can go wrong.

You can read it in order, like a book, or go straight to the chapter you need. Each one takes about five minutes. The words that matter are explained in the margin as you go.

The same example runs through every chapter, so the numbers never change under you: £1,000 lent for five years at 5%. That pays £50 a year, and £1,250 in total if every promise is kept. It is an illustration, not a forecast.

What this guide will not do

It will not tell you what to buy, and it will not ask for your details. There is no form, no newsletter and nothing to sign up for. It explains how bonds work so that you can make your own decisions, or ask better questions of an adviser.

If you are still deciding whether to move money out of cash at all, our sister site, targeted-support.uk, starts one step earlier.