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How To Buy Bonds in the UK 2019

Last Updated: 06. June 2019
How To Buy Bonds in the UK 2019
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Unlike stocks and shares, the process of buying bonds can be a bit more complicated. Not only do you need to have a firm understanding of how bonds work, but you also need to find a suitable broker. In fact, bonds are one of the most diverse assets that you can invest in, so it’s key you know what you are doing.

Fortunately for you, we’ve created the ultimate guide on how to buy bonds in 2019. Within it, we’ll cover everything from corporate bonds, government bonds, fixed-rate bonds, savings bonds, and more. Within each bond classification, we’ll also give you a brief overview of how each bond works, as well as the types of risk and return you should expect.

Let’s start by quickly making sure we understand what a bond actually is.

What are Bonds?

In a nutshell, bonds are a debt obligation issued by corporations and governments. You as the bondholder essentially lend money to these institutions. In return, you receive regular interest payments throughout the duration of the loan. Once the bond expires, you then receive your original investment back in one lump sum.

 

Let’s take a look at a quick example.

  1. You buy £5,000 worth of bonds
  2. The yield (interest rate) is 3%
  3. The term of the bond is 3 years
  4. At the end of each year, you’ll get 3% in interest payments, or £150
  5. When the bonds expire (after 3 years), you’ll get your £5,000 back
  6. In total, you would have made £150 x 3 in interest, or £450

 

Note: bonds are not always this simple, as you need to consider a range of factors. For example, each bond will have its own risk level. This will depend on the company or government issuing the bond. Governments like the UK and U.S. will issue super low-risk bonds, as its almost impossible for them to default.

On the other hand, companies with a poor track record are higher risk. The higher the risk, the higher the yield you should expect.

So now that you know what bonds are, let’s take a look at the pros and cons of investing in bonds.

Should I Buy Bonds?

Pros

  • Gain access to a wide range of markets
  • Choose from government or corporate bonds
  • Receive regular interest payments
  • Some bonds are very low risk
  • Choose your own risk levels
  • Choose how long you want to invest for

Cons

  • Most bonds don’t allow you to cash out before they expire
  • Access to certain bonds, such as those issued by foreign governments, can be difficult

What Different Types of Bonds Can I Buy in the UK?

There is a vast range of bonds types that you can buy. Although we will explain each bond type in more detail below, as well as how you can buy them, here is a list of the main bonds available for purchase.

  • Corporate Bonds: Bonds issued by large companies
  • Government Bonds: Bonds issued by governments
  • Property Bonds: Bonds backed by property, or to fund property developers
  • Savings BondsBonds issued by banks or building societies
  • Bond ETFs: Trade bond prices on the open marketplace without owning the bonds

Where Can You Buy Bonds from in the UK?

  • An online broker
  • Directly from the Government that issues them (for example the UK’s Debt Management Office)

How to Select a UK Online Bond Broker

If you wish to buy corporate bonds, the easiest way to do it online through an online bond broker. There are a variety of online brokers out there offering bonds, and in order to make the best investments you will need to select carefully. This includes looking at fees, customer support and the tools they offer. Luckily, we’ve tested the online bond brokers for 2019. Before we list a broker on our platform, we ensure that they meet our strict criteria.

Here are the factors that we look out for.

  • Fees and commissions
  • User friendliness and customer support
  • Research and analytics tools
  • Number of investment options
  • Trading platforms
  • Offers and promotions
  • Number of markets accessed by the trader

How to Buy Corporate Bonds in the United Kingdom

Corporate bonds allow you to lend money to companies of all sizes. They work in exactly the same way as any other bond that you will buy, insofar that you get to choose the length of the bonds, the yield, and the risk. Corporate bonds are typically riskier than government bonds, as there is always the chance that the underlying company will run in financial trouble.  However, this also means that you’re likely to get a higher yield.

As an everyday investor, you won’t be able to buy corporate bonds directly from the issuer, so you’ll need to do this through a broker.

Given this criteria, here’s a list of the best brokers in the UK to buy corporate bonds from.

1. Hargreaves Lansdown

Hargreaves Lansdown is one of the most established brokers in the UK investment arena. The platform facilitates virtually every asset class. Whether you’re looking to invest in shares, mutual funds, ETFs, or bonds, you’ll find is at Hargreaves Lansdown. Although fees at Hargreaves Lansdown are slightly higher than the average broker, you will have access to industry-leading analysis. When it comes to their bonds department, the broker lists hundreds of corporate bonds across multiple risk classes.

Investment process

With the odd exception, the vast majority of bonds at Hargreaves Lansdown need to be purchased over the telephone. This is because you are buying the bonds directly from the broker. They also want to ensure that you have a firm understanding of how your bond investment will work.

Before you do that, you’ll need to open an account and deposit some funds.

Fees and minimum deposits

The minimum amount of corporate bonds you can buy will depend on the specific bond. Some allow you to invest £50, while others stipulate £50,000 or more.

In terms of fees, you will need to pay a 1% telephone dealing fee. This is a minimum of £20 and a maximum of £50.

Pros:

  • One of the most established brokers in the UK
  • Huge list of corporate bonds
  • Industry leading analysis
  • Accepts debit/credit cards and bank account deposits

Cons:

  • Most bonds need to be traded over the phone
  • 1% telephone dealing fee to trade bonds

How to buy bonds on Hargreaves Lansdown – tutorial

Step 1: Open an account with Hargreaves Lansdown

Step 2: Head over to the bonds page and choose which bonds you want to invest in

Step 3: Make a deposit with your debit/credit card

Step 4: Call the Hargreaves Lansdown telephone dealing service

Step 5: Explain to the agent which bond(s) you want to buy

Step 6: You will now be in possession of your chosen bonds.

 

 

2. DEGIRO

Although DEGIRO is headquartered in the Netherlands, they now have a huge presence in the UK investment space. On top of listing hundreds of corporate bonds, the platform also facilitates the trading of shares, ETFs, and funds. DEGIRO is heavily regulated, meaning that your funds are safe.

Investment process

You will initially need to open an account by supplying DEGIRO with some personal information. Before you get access to the trading floor, you will need to deposit funds from your bank account. This can take a few days for the funds to show in your account, so do bear this in mind.

Once you’ve found the bonds that you want to buy, you can do this online. As such, there is no need to use the telephone dealing service.

Fees and minimum deposits

Although you can fund your DEGIRO account with just £1, the minimum bond investment will depend on the corporate bond you want to buy. One of the best things about using DEGIRO to buy bonds is that their fees are super low.

Pros:

  • Lists a huge number of corporate bonds
  • Deposit as little as £1
  • Fully regulated
  • Really low  fees

Cons:

  • Have to deposit funds before you can view what bonds are available

How to buy bonds on DEGIRO – tutorial

Step 1: Open an account with DEGIRO

Step 2: Deposit funds through a bank account transfer

Step 3: Head over to the bonds section of the trading platform

Step 4: Choose the bonds you want to buy

Step 5: Enter the amount you want to buy (in your local currency) and place your order

Step 6: You will now be in possession of your chosen bonds.

How to Buy Government Bonds in the UK

If you’re looking to invest in government bonds, you are essentially lending money to the government. Take note, for the average investor, it can be difficult to buy bonds that are issued by foreign governments. However, if you’re based in the UK and you want to buy bonds issued by the UK government, then this is a very simple process.

In terms of the risks, bonds issued by stable governments that operate in strong economies (like the UK, U.S., EU, ect.) are virtually risk-free. The only way you would lose money is if the government collapsed. However, buying government bonds from less stable economies (such as Turkey or Venezuela) carries significant risk.

UK Government Bonds (Gilts)

If you’re based in the UK and you want to buy government bonds, you can do this directly from the government. You will need to go through the government’s online portal, which is known as the UK Debt Management Office, or simply DMO.

  • The minimum investment is £100, and you will need to purchase the Gilts in multiples of £100.
  • You can also choose the length of the Gilt, which usually starts from just 2 years.
  • In terms of the yield, this will vary depending on when you buy the bonds, however, at the time of writing, a 2 year and 5 year bond will pay 0.68% and 0.79%, respectively.

Pros:

  • Ultra-low risk
  • Choose the length you want to hold the bond for
  • Buy directly from the UK government
  • Very low fees

Cons:

  • Yield rates are really low

How to Buy UK Gilts Through the DMO Office – tutorial

Step 1: Register with the DMO Office

Step 2: Provide information regarding your UK residency (national insurance number etc.)

Step 3: Choose the length of the UK government bonds you want to buy (for example 3 years)

Step 4: Select how many you want to buy (multiples of £100)

Step 5: Enter your payment details and purchase the bonds

How to Buy Property Bonds in the UK

Property bonds are an excellent way to to get exposure to the ever-growing real estate space. In most cases, when you buy property bonds, you are effectively lending money to developers that require funding to build a particular project.

The developers will still pay you an annual yield, and then your original investment at the end of the term. As property bonds carry a lot more risk than traditional corporate or government bonds, the interest rates on offer are much higher. As such, you should expect to earn between 8%-12% in yields.

1.      Property Crowd

Property Crowd is a platform that allows you to lend money to property developers. As noted above, these developers are looking to finance ongoing construction projects. Each project will clearly list who the money is being lent to, how long each bond agreement is, and how much yield you will earn. Property Crowd is very selective on which developers they list on their platform, with just 2% of firms making the cut.

Investment process

You will first need to open an account with Property Crowd.

You can then view the different developers that want to be funded. The process works on a crowdfunding basis, so the funding process will continue until the bonds are sold out.

Once you’ve bought the bonds, you will receive annual interest payments from the developers.

At the end of the term, you’ll then receive your initial investment back.

Fees and minimum deposit

The good thing about Property Crowd is that they don’t charge you any fees. The platform instead collects this from the developers that want funding. You will need to buy at least 10 bonds, which averages a total investment of £900.

Pros:

  • High yields of between 8%-12%
  • Gain access to the property development marketplace
  • Get started with an investment of just 10 bonds (about £900)
  • No fees

Cons:

  • Higher risk than other bond types

How to Buy Bonds on Property Crowd – tutorial

Step 1: Open an account with Property Crowd

Step 2: Deposit some funds

Step 3: Choose the property development project you want to back

Step 4: Select how many bonds you want to buy (minimum of 10 bonds)

Step 5: Complete the purchase

Property Partner

If you’re looking for exposure to the UK real estate industry, then look no further than Property Partner. While the financial instruments sold by the platform are not technically bonds, they operate in exactly the same way. When the team at Property Partner identify an attractive property investment, they will fund the deal on a crowdfunding basis. This means that you can invest in a UK property without the need to invest hundreds of thousands of pounds.

The reason these act like bonds is because you will receive monthly payments in the form of rental income. Furthermore, at the end of the term (5 years minimum), you will receive your investment back as a lump sum, but at the current market rate.

Investment process

Firstly you will need to open an account and verify your identity.

Next, you can start browsing the many investment opportunities listed by Property Partner. Each property will have an expected rental yield attached to it. This is usually between 4-7% per year.

You can either invest in a property before it is purchased via crowdfunding, or buy the property shares on the secondary market. Either way, you’ll still get the monthly income payments.

Your yield is paid into your account on a monthly basis.

When the property is sold, you will then receive your lump sum investment back. However, this is at the current market rate, meaning you will benefit from appreciation growth.

Fees and minimum deposit

Property Crowd charge a 2% fee every time you make an investment. For example, if you invest £10,000 into a property, then you’ll pay £200 in fees. This is to cover the costs associated with sourcing the investment opportunities, and managing the property.

The minimum investment allowed is £1,000.

Pros:

  • Gain exposure to the UK real estate space
  • Much higher yields than government or savings bonds
  • Minimum investment of £1,000
  • Interest yield paid every month

Cons:

  • You might struggle to sell your investment before the property is sold

How to Buy Bonds on Property Partner tutorial

Step 1: Open an account with Property Partner

Step 2: Verify your identity (upload a copy of your government issued ID)

Step 3: Choose the property that you want to invest in

Step 4: Enter the amount that you want to invest (minimum of £1,000)

Step 5: Enter your debit/credit card details

Step 6: Complete your purchase

How to Buy Savings Bonds in the UK

Savings bonds are a bit different to other bonds that we have listed, as you will need to buy these directly from a bank or building society. They operate in a similar way to savings accounts, however, the yields on offer are much higher. Unlike savings accounts, you won’t be able to cash out your savings bonds before the maturity date.

Even if the institution does allow you to do this, there is a good chance that you will receive less than you invested. Savings bonds in the UK typically pay between 1-3%. In terms of maturity dates, savings bonds are usually available between 1-5 years.

ICICI Bank UK – 2.4% – 3 years

ICICI Bank UK is a financial services provider with clients in both the UK and Europe. They now offer 3 year bonds at an annual yield of 2.4%. The bonds are protected by the FSCS protection scheme, meaning that up to £85,000 is safeguarded by the UK government, should the company fail to exist.

Investment process

You will need to open an account with ICICI Bank to get the process started.

Once you do, you will then need to transfer the amount that you want to invest directly into your new account.

Once the bonds are purchased, you won’t be able to cash them out before the 3 year expiry date.

Fees and minimum deposits

There are no fees charged by ICICI Bank, as you are buying bonds directly from them.

The minimum deposit is £1,000, although there is no maximum.

Pros:

  • Backed by parent company ICICI, who are a major Indian bank
  • Competitive yield
  • Investment protected up to £85,000 by FCSCS scheme

Cons:

  • Unable to sell bonds before expiry

How to Buy Savings Bonds on ICICI Bank

Step 1: Head over to the ICICI Bank bonds page (link below)

Step 2: Register your details (name, address, date of birth, etc)

Step 3: As you are registering with a financial institution, you will need to verify your identity (passport or driving license)

Step 4: Select how many you want to buy (minimum of £1,000)

Step 5: Once your account is verified, transfer the bonds to your new account via bank transfer

Step 6: Once the bonds mature, transfer the funds back to your bank account

 

QIB (UK) – 2.05% – 1 year

QIB (UK) specializes in providing finance to those involved in the real estate space. They allow you to purchase savings bonds directly. The great thing about QIB (UK) savings bonds is that you can earn a highly attractive 2.05% yield in just 12 months. This is great for short-term investors. Moreover, the saving bonds are also protected by the FSCS scheme.

Investment process

Simply visit the QIB (UK) platform and open an account.

Once you’ve decided how much you want to invest, you will need to perform a bank transfer across to QIB (UK).

As soon as the funds are received, your savings bonds are purchased.

You can’t sell the bonds before the 1 year period is over. Once it is, you can transfer the funds back out.

Fees and minimum deposits

There are no fees charged by QIB (UK), as you are buying bonds directly from them.

The minimum deposit is £1,000, although up to a maximum of £85,000.

Pros:

  • Good yield rate for an investment of just 1 year
  • Protected by FSCS scheme

Cons:

  • Unable to sell bonds before expiry

How to buy savings bonds on QIB UK

Step 1: Head over to the QIB UK bonds page (link below)

Step 2: Register your details (name, address, date of birth, etc)

Step 3: As you are registering with a financial institution, you will need to verify your identity (passport or driving license)

Step 4: Select how many you want to buy (minimum of £1,000)

Step 5: Once your account is verified, transfer the bonds to your new account

Step 6: Once the bonds mature, transfer the balance back to your bank account

 

 

How to Buy Bond ETFs in the United Kingdom

Bond ETFs have their pros and cons. On the one hand, you don’t actually own the underlying bond, as you are instead speculating on whether the price of the bond will go up or down in the open market. However, bond ETFs are one of the easiest ways to gain exposure to bonds that you would otherwise be unable to purchase.

A perfect example of this is foreign government bonds. Say, for example, you wanted to invest in Turkey government bonds, it would be virtually impossible to do this unless you are an institutional investor. On the contrary, you can do this online via a bond ETF at the click of a button.

Hargreaves Lansdown

Hargreaves Lansdown is a heavily regulated, highly reputable broker based in the UK. You have access to a full range of bond ETFs at the platform.

Fees and minimum deposits

£11.95 per ETF trade, £9.95 if you trade between 10-19 per month, or £5.95 for 20 trades or more.

A minimum deposit of just £1 to get started.

Pros:

  • One of the most established brokers in the UK
  • Heavily regulated
  • Excellent analisis department
  • Huge list of bond ETFs

Cons:

  • Fees much higher than other bond ETF brokers

How to buy bond ETFs on Hargreaves Lansdown

Step 1: Open an account with Hargreaves Lansdown

Step 2: Deposit some funds into your account (debit/credit card)

Step 3: Head over to the bonds ETF page and choose which bonds you want to trade

Step 4: Decide whether you think the bond ETF will increase or decrease in value

Step 5: Enter the amount you want to invest, and place the trade

Step 6: You can sell your bond ETF investment at any time via the trading area of your account

 

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DEGIRO

DEGIRO offers a huge range of investment products, including that of bond ETFs. Although their platform is less user-friendly than Hargreaves Lansdown, fees at DEGIRO are super low.

Fees and minimum deposits

DEGIRO allow you to deposit just £1 to get started, although you will probably want to fund your account with more.

The exact fee will depend on the ETF you want to buy. However, you’ll get one free ETF trade per month.

Pros:

  • Very extensive list of bond ETFs
  • Deposit as little as £1
  • Heavily regulated
  • Industry leading low fees

Cons:

  • Not the most user-friendly of platforms

How to buy bond ETFs on DEGIRO

Step 1: Open an account with DEGIRO

Step 2: Transfer funds via bank transfer

Step 3: Once your account is verified, head over the bonds ETF section

Step 4: Choose which bond ETFs you want to trade and whether you think the price will go up or down

Step 5: Enter the amount you want to invest, and place the trade

Step 6: You can sell your bond ETF investment at any time via the trading area of your account

Bond Calculator:

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FAQs

Do I need a broker to buy corporate bonds?

Unless you are an institutional investor, then you will need to use a broker to buy corporate bonds.

What is the minimum I can invest when buying bonds

This all depends on the specific bond you are buying. While you can buy UK government bonds from as little as £100, some corporate bonds require a minimum investment of £50,000.

How much can I earn from property bonds?

As Property Bonds afford a higher level of risk in comparison to savings bonds and government bonds, expect to earn a yield of between 8% and 12%.

What happens if my savings bonds default?

If you invest in savings bonds and the underlying issuer is covered by the UK’s FSCS scheme, then you will have up to £85,000 protected by the UK government. This makes savings bonds really attractive.

Do bond ETFs pay interest?

Bond ETFs don’t pay interest, as you don’t own the underlying bond agreement. Instead, you are speculating on whether you think the value of the underlying bond will go up or down. As such, bond ETFs never expire.

Can I cash out my property bonds early?

In the vast majority of cases, you can’t. As you are lending the money directly to property developers, you won’t get your money back until the agreed maturity date. Although some platforms have a secondary market, there is never any guarantee that you will find a buyer.

 

 

 

Views expressed are those of the writers only. Past performance is no guarantee of future results. Trading comes with severe risk. All content on our website is provided solely for informational purposes, and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security, product, service or investment. The opinions expressed in this Site do not constitute investment advice and independent financial advice should be sought where appropriate.
Kane Pepi

Kevin holds academic qualifications in the finance and financial investigation fields. With a passion for all-things finance, he currently writes for a number of online publications.