Gilts are securities issued by the UK Government and corporate bonds are securities issued by companies - learn about their advantages and disadvantages.
Gilts and bonds

Gilts and bonds

Gilts and bonds help companies or governments raise money by borrowing from investors. They’re sometimes called fixed interest securities.

Securities issued by the UK Government are called ‘gilts’, and securities issued by companies are known as ‘corporate bonds’. They’re similar to loans in the sense that if you buy a bond or gilt, you’ll receive regular interest payments. At the end of the ‘loan’ term, the organisation that issued the bond repays the money that the original investors paid them, e.g. if you spent £100 on the bond when it was issued, you’ll get £100 back. However, over the term of the bonds the value can rise and fall, based on the credit worthiness of the issuer and movements in interest rates.

Advantages of gilts and bonds

  • They provide a regular, stable income through their interest payments
  • They can help diversify  your investment portfolio, as their prices are affected by different market conditions than share prices
  • Compared to some shares, they generally carry less risk.

Gilts

Government bonds are generally safest because countries are often more financially secure than companies. UK gilts are considered very safe as it’s likely the UK Government will repay its debts. However, because they’re low risk, the returns are usually low too. And gilts aren’t risk-free – there are some overseas countries that have been unable to meet repayments on their bonds. 

Corporate bonds

Although corporate bonds are generally considered to be less risky than shares, they’re not risk-free. If a company runs into trouble, it might not pay interest or repay your money at the end of the term.

It’s a good idea to invest in bonds from a mix of companies, so your money isn’t tied to the fortunes of one company.

Disadvantages of gilts and bonds

Things to remember

  • The value of bonds and gilts can fall as well as rise. When you sell them, you may get back less than you invested.
  • If the issuer of this type of investment is unable to meet interest payments on them or repay them when due, you could lose your whole investment.

Barclays Stockbrokers doesn’t offer investment advice.  If you’re unsure about whether gilts and bonds are right for you, please seek independent financial advice.

How to buy gilts and bonds

You can buy individual gilts and bonds directly from the market, in the same way as you buy shares.

You can also buy funds which hold a wide range of gilts and bonds. This gives you instant diversification in a single investment. You can choose the fund which fits your risk profile or pays the level of interest you’re looking for.

Jargon buster

Collective investment - an investment structure which pools together investments from different individuals and combines them to fund investments. Each individual investor then holds an interest in a small part of each asset.

Credit worthiness - an assessment of the likelihood that a borrower will default on their debt obligations. This is usually based on facts such as their credit score, history of repayment and availability of assets.

Diversify - A risk management technique that mixes a variety of investments within a portfolio.

Inflation - A general increase in prices and fall in the purchasing value of money.

Interest payments - a payment amount earned on cash savings accounts or certain investments, e.g. gilts and bonds. The amount is determined by an interest rate which can either be fixed or variable.

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More about gilts and bonds

Learn about other investments

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Our dedicated Client Service Team can help you get started. They won’t be able to give you advice on whether an investment is suitable for you, but they can answer questions about procedures and help you get started.

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