What is a bond?

Bond: A loan to a company or government. You receive interest and your money back at maturity, unless the issuer cannot pay.

With a bond you lend money to a company or a government. In return you get a fixed interest payment every year. On the end date you get the amount you lent back.

Bonds are also traded on the market. If market interest rates rise, existing bonds with a lower rate lose value. If rates fall, they gain value.

Many people hold bonds next to shares, because bonds usually move more calmly. But a bond can also lose value.

Example
You buy a bond of 1,000 euros with 3 percent interest and a term of 5 years. You receive 30 euros interest each year, 150 euros in total. After 5 years you get the 1,000 euros back, provided the issuer can pay.

Watch out
If the issuer can no longer pay, you can lose both the interest and your money. A high interest rate is often a sign of higher risk.

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