Finance
How do bonds work?
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.
See it in motion.
Watch a 2-minute animated lesson that shows exactly how bonds works.
Step by step
- 1Buying a bond means lending money to the issuer.
- 2The issuer pays you regular interest (the 'coupon').
- 3At maturity, you get your original investment back.
- 4Bonds are generally lower-risk and steadier than stocks.
Frequently asked questions
- 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.