An Introduction to bonds

An Introduction to bonds

It is not unusual for people to get confused when they are talking about bonds. This is a broad term that includes a huge range of different financial products. This is why we recommend learning more about bonds before making any investment plans.

If you are interested in investing any additional cash you have and you’ve done some research, there is a good chance that you have encountered the term bonds. Bonds come in different forms and guises and, in this article, we will attempt to enlighten you about the different kinds of bonds that are available.

Gilts/UK Government 

First of all, there are gilts or UK government bonds. Putting it simply, this is where people lend money to the government in order to receive an IOU as compensation. The fact is that the UK government keeps launching brand new gilts all the time. If you are looking for a stable investment that comes with a low-interest rate and you are not interested in short-term investments, then gilts might be a good option for you. Investors can always sell their gilts, but they can fluctuate in value due to the stock market so you might not get your full investment back. On the whole however, bond and gilts are a fairly safe and reliable investment option.

Cash bonds/fixed rate 

This special type of type of bond is like a savings account. You tie the money you have up for a certain time and during this period you get an interest rate that is guaranteed. The biggest advantage of fixed rate bonds is the fact they are (almost) completely safe and you can always make plans for the future. The only disadvantage is that they come with relatively low-interest rates which mean that even if the economy does really well, the fixed rate bond will still remain low.

Mini 

This is one of the latest types of bonds in the market issued by small, new companies. With this bond, your money is tied up for three years. During this period, you are unable to sell the bonds. There are many mini bonds that have provided very high return rates and this is the reason why they are attractive to private investors. But, there are some experts who find them unattractive because the risk involved in the process is relatively high too. Many small companies do go out of business and in cases like this, you won’t see your money again.

Corporate 

Corporate bonds work in a similar way to government bonds, but in this instance, they are issued by private companies. These bonds are traded directly on the markets and their value changes on a daily basis. Since there is higher risk involved, these bonds usually bring a higher return. Of course, this all depends on the company’s performance and is subject to a lot of variables.

Want to know more about bond investments? Contact us now.