Investment guide
What are bonds and gilts?
Bonds are investments that involve lending money to a government or company in return for interest and the repayment of capital at a future date. Gilts are bonds issued by the UK Government.
The basics
A bond is effectively an IOU.
When you buy a conventional bond, you are lending money to the issuer for a defined period. In return, the issuer normally pays interest — often called a coupon — and aims to repay the bond's face value when it matures.
Bonds can be issued by governments, companies and other organisations. The strength of the issuer and the terms of the bond influence the level of risk and the return investors may demand.
Bonds trade in the market, so their price can move after issue. The return you receive therefore depends on the price paid, income received and whether the bond is held to maturity or sold earlier.
UK Government bonds
Gilts are bonds issued by the UK Government.
The UK Debt Management Office issues gilts on behalf of the Government to help finance government borrowing and refinance maturing debt.
Retail investors can access gilts through the secondary market using a stockbroker or bank, and eligible investors can also use the DMO's Purchase and Sale Service.
Conventional gilts
Normally pay a fixed coupon and repay a fixed nominal amount at maturity.
Index-linked gilts
Payments are linked to inflation under the gilt's terms, so they behave differently from conventional fixed-coupon gilts.
Risk
Bonds are not all equally safe.
Credit risk
The issuer may fail to make interest payments or repay the capital due.
Interest-rate risk
Existing bond prices can fall when market interest rates rise.
Inflation risk
Fixed future payments may buy less in real terms if inflation is higher than expected.
Liquidity risk
Some bonds may be harder to sell quickly at a fair price than others.
If you need to sell before maturity, the market price at that point matters.
Interest rates
Bond prices and market interest rates often move in opposite directions.
If newly issued bonds start paying higher rates, an older fixed-rate bond can become less attractive unless its market price falls. Conversely, falling market rates can make an older higher-coupon bond more attractive.
The sensitivity can be greater for longer-dated bonds because investors are locked into the existing terms for longer.
For an individual conventional bond held to maturity, interim price movements may be less important if the issuer ultimately meets all payments. A bond fund, however, normally holds a changing portfolio and does not itself mature on one fixed date.
Bond funds
You do not have to buy individual bonds.
Bond funds pool investor money and hold portfolios of government or corporate bonds. This can provide diversification across many issuers and maturities.
But a bond fund behaves differently from an individual bond. The fund's value moves with the market and there is generally no single maturity date at which your original investment is automatically repaid.
Important distinction
Do not confuse mainstream bonds with speculative mini-bonds.
The FCA warned again in August 2026 about high-risk mini-bonds and unregulated loan notes. These can involve lending directly to a company and may offer unusually high fixed returns.
The FCA says these investments can be complicated, are not suitable for most people and may leave investors losing all of their money if the issuer fails.
Do not assume the word “bond” means an investment has the same characteristics or protections as a UK government gilt or a diversified regulated bond fund.
Investment planning
Not sure what role bonds should play in your portfolio?
A personal review can consider how bonds, shares, cash and other assets fit together around your objectives, investment timeframe and capacity for loss.
Book a conversationThis guide is for general information only and is not personal financial, investment or tax advice. Bond and gilt prices can fall as well as rise and you may get back less than you invest if you sell before maturity or the issuer defaults. Content checked against current UK Debt Management Office and FCA guidance on 16 September 2026.