What Are Corporate Bonds

By Author: Lecia Selbo
Total Articles: 49
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Corporate bonds are a way for you to invest in companies. Companies release bonds, usually at a price of around 100GBP per bond. After a set term, you will receive this money back, plus interest. The interest rate on bonds is called the coupon rate and it is fixed, given a currency value rather than a percentage value, and is paid to you ever year for the length of the term.

When a company pays you back the nominal value of the bond, you receive the original nominal value, so the stock market value, which may be larger or smaller then the nominal price, is not taken into account.

Corporate bonds do carry an investment risk in that the company that you purchase bonds from may go bust. This would result in the company being unable to pay the money that it owes you. For this reason, riskier companies tend to release bonds with higher coupon rates.

Bonds can be traded on the stock market at any point after they are issued and before they mature. Their value rises and falls during this time depending on the performance of the firm that issued them, the state of the market, and the length of time left before they ...
... mature.

Prior to 2010, only the very wealthy could afford to purchase corporate bonds as they were released in minimum denominations of around 50,000 to 100,000 GBP. Recent changes mean that you can now purchase bonds in more affordable denominations of a minimum of 1000 GBP.

A popular way to invest in bonds is to join a corporate bond fund. This involves pooling your investment money along with other investors so that more bonds, and a greater variety of bonds, can be purchased and traded on the stock exchange, with the profits being split among the investors.

Individual bonds allow investors to purchase bonds in lower denominations of around 1000 GBP. This allows more people to invest in major companies, where they will usually see a higher return than is available from standard savings accounts. You should remember that the coupon rate is fixed however, so if there are any significant rises in interest rates, you will not benefit from this.

In most circumstances, a corporate bond fund will provide higher returns than individual bonds, although the returns may fluctuate over time, which would not happen with individual bonds.

#Pen Name# is very knowledgeable on savings and accounts and loves to write about corporate bonds. Lecia Selbo is very knowledgeable on savings and accounts and loves to write about corporate bonds.