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How do bonds work?

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Quick answer

A bond is essentially a loan you give to a government or company. In return, they pay you regular interest for a set period, then repay the original amount at the end. Bonds are usually steadier and lower-risk than stocks.

Step by step

  1. Buying a bond means lending money to the issuer.
  2. The issuer pays you regular interest (the 'coupon').
  3. At maturity, you get your original investment back.
  4. Bonds are generally lower-risk and steadier than stocks.

People also ask

How does a bond work?
You lend money to a government or company, receive regular interest, and get your principal back at maturity.
Are bonds safer than stocks?
Generally yes — they offer steadier, predictable returns, though usually lower than stocks over the long run.
What happens if interest rates rise?
Existing bonds with lower rates become less attractive, so their market price typically falls.

Part of the guide: Money Basics: Save, Borrow & Invest →