How to Buy Government and Corporate Bonds in the UK

Investing in bonds offers a way to lend money to governments or companies, receiving regular interest payments in return. This guide provides practical steps for individuals in the UK interested in purchasing these instruments. Navigating the UK bond market can help diversify an investment portfolio and provide a steady income stream. The following sections cover the fundamentals of UK bonds, where to acquire them, how to prepare an investment account, execute a purchase, and manage these holdings.

Basics of UK Bonds

A bond represents a loan from an investor to an issuer (government or corporation). Bond terms include the “coupon,” a fixed interest payment received semi-annually. The “maturity date” is when the issuer repays the original loan amount, the “face value” or “nominal amount,” often £100 per bond.

Two main types of bonds are available in the UK: UK Government Bonds (Gilts) and Corporate Bonds. Gilts, issued by His Majesty’s Treasury through the Debt Management Office (DMO), are considered safest due to UK government backing. Corporate bonds are issued by companies to raise capital. While corporate bonds generally offer higher returns than Gilts, they also carry a greater risk of issuer default.

Where to Buy Bonds in the UK

Individuals purchase bonds in the UK through online investment platforms, or brokers. These platforms offer access to UK Gilts and corporate bonds, allowing investors to select instruments aligning with their financial objectives. Popular platforms include Hargreaves Lansdown, AJ Bell, and Interactive Investor, offering tools and resources for bond investing. Setting up an account with a platform is a common first step for retail investors.

While direct access to UK Gilts through the Debt Management Office’s Purchase and Sale service is possible, it is typically for institutional investors. For individuals, buying Gilts on the secondary market through a stockbroker is more accessible. Traditional bonds differ from National Savings & Investments (NS&I) products like Premium Bonds or British Savings Bonds. NS&I products are government-backed savings accounts, not tradable bonds, offering prize draws or fixed interest rates without a secondary market. A regulated financial advisor can also facilitate bond purchases and provide tailored investment advice.

Preparing Your Investment Account

Before purchasing bonds, individuals must prepare an investment account with a platform or broker. This involves providing personal and financial information to comply with regulatory requirements. This includes proof of identity (e.g., passport, driving license) and proof of address (e.g., utility bill, bank statement). A National Insurance number (NINo) and bank account details for funding are also required.

Investors must select an account type, or account wrapper, to hold their bonds. Common options in the UK include a General Investment Account (GIA), a Stocks and Shares Individual Savings Account (ISA), or a Self-Invested Personal Pension (SIPP). Each account type serves a different purpose: a GIA offers flexibility but no tax advantages, an ISA allows tax-free growth up to an annual limit, and a SIPP provides tax relief on contributions for retirement savings. Once the account is set up and verified, funds can be deposited via bank transfer or debit card to enable bond purchases.

Executing Your Bond Purchase

After opening and funding an investment account, navigate the platform to select and purchase bonds. Most online platforms feature a dedicated bond section with search filters to locate specific instruments. Investors can filter by issuer (e.g., UK Treasury for Gilts, specific companies for corporate bonds), maturity date, coupon rate, and yield. This helps narrow down available bonds to meet investment criteria.

Understanding bond price quotes is important when placing an order. Bonds are quoted as a percentage of their face value; for example, 98.5 means the bond trades at 98.5% of its £100 nominal value. Accrued interest is also relevant, as the buyer pays the seller any interest accumulated since the last coupon payment date. Once a bond is selected, the investor specifies the nominal amount to purchase, determining the total investment. The platform then displays the total cost, including trading charges, before the order is confirmed and submitted.

Managing and Selling Your Bonds

Once a bond purchase is complete, investors receive regular interest payments, known as coupons. These payments are credited to the investment account semi-annually, as specified by the bond’s terms. Monitoring payments and tracking bond performance can be done through the investment platform’s portfolio view.

When a bond reaches its maturity date, the issuer repays the original face value to the investor. This principal repayment is credited to the investment account, concluding the bond’s life cycle. Investors can also sell their bonds on the secondary market before the maturity date. The price at which a bond can be sold before maturity fluctuates based on market conditions, including interest rates and issuer creditworthiness. To sell, investors place a sell order through their investment platform, similar to the purchase process, and proceeds are deposited into their account.