What are bonds?
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Savings have taken a hit in the last year thanks to COVID-19, which has piled unprecedented pressure on UK jobs. The lockdown has put many firms out of business and prompted workers to move elsewhere or rely on financial help. Everyone else is working from home and may have a little extra money on their hands to invest in a new savings method.
What are bonds?
Most people put money aside for a savings account with reasonable interest as a reliable source of additional income.
But some may want to maximise their money by investing, which they can do via several avenues.
Bonds are one such avenue and could earn people a significant chunk of extra cash.
They serve as a means for individuals to invest in companies or the Government.
Organisations release bonds to finance projects on the promise they will pay back their buyers.
Bonds also come with variable or fixed interest rates borrowers pay their financiers.
Many financial experts refer to the investing process as an IOUs made by organisations.
People who hold bonds are, in effect, debtors to the organisations that issue them.
They can buy bonds either over the counter or publicly with several terms attached.
The terms will come with expected interest payments and when funds must return to the lender.
Companies can set the price of a bond which may differ from its actual marketplace worth, however.
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Bonds have several characteristics potential investors should note before they buy.
Issue price – The set price at which an organisation sells a bond.
Face value – The amount the bond is worth at maturity and a reference amount issuers use to calculate interest.
Coupon rate – Coupon rate is a term which describes the rate of interest borrowers will pay investors as a percentage.
Coupon dates – Issuers must provide dates when they will pay interest to their lenders.
Maturity date – Once a bond meets its maturity date, issuers will pay back their lender its face value.
There are many potential bonds people can invest in, both in the private and public sector.
- Social impact bonds
- Guaranteed equity bonds
- With-profits bonds
- Insurance bonds
- Index-linked bonds
- Company bonds
- Business savings bonds
- Ethical bonds
- Tracker bonds
- Floating rate bonds
- Offshore bonds
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