What is a bond?
What you'll learn
Understand what a bond is - lending money rather than owning a slice of a company.
A bond is a loan. When you buy one, you lend money to a government or company, and in return they promise to pay you regular interest and give your money back on a set date.
Lending vs owning
This is the key contrast with shares. A share makes you an owner; a bond makes you a lender.
- An owner (shareholder) shares in profits and losses with no fixed end date.
- A lender (bondholder) is owed a set return and the original sum back, but does not share in the company's success beyond that.
| Bond (lending) | Share (owning) | |
|---|---|---|
| Your role | Lender | Part-owner |
| What you get | Interest plus money back | Growth and dividends |
| Typical risk | Lower | Higher |
| Upside | Capped at the agreed interest | Unlimited in theory |
Why people hold bonds
Bonds usually move more gently than shares, so many investors mix them in to steady a portfolio. UK government bonds are called gilts; companies issue corporate bonds.
They are not risk-free, though. A borrower can default (fail to repay), and a bond's market value can fall if interest rates rise after you buy it.
Key takeaways
- A bond is a loan to a government or company, repaid with interest.
- Bondholders lend; shareholders own.
- Bonds tend to be steadier than shares, with a capped upside.
- They still carry risk: default by the borrower and falling value if rates rise.
Illustrative only: shows the idea of lending an amount and being paid interest plus the original sum back. Figures are made up to explain the concept. Not a forecast.
Frequently asked questions
How is a bond different from a share?
A share makes you a part-owner of a company. A bond makes you a lender - you are owed your money back plus interest, but you own nothing.
Are bonds risk-free?
No. The borrower could fail to pay, and a bond's market value can fall if interest rates rise. Bonds are generally steadier than shares, not risk-free.
Who issues bonds?
Governments and companies issue bonds to borrow money. A UK government bond is called a gilt.
General information, not financial advice. The value of investments can fall as well as rise, and figures and rules can change; check the current position before acting.