How to Invest in Bonds UK – Invest in Bonds Today!

Fact Checked by Gary McFarlane

If you’re the type of investor that seeks steady and predictable returns on your capital – bonds are well worth considering. In most cases, bonds come with a fixed rate of interest – meaning you will receive a payment every 6 or 12 months until they mature.

In this guide, we show you how to invest in bonds in the UK with an FCA-regulated broker in under 10 minutes!

#1 Broker to Invest in Bonds UK – eToro

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How To Invest in Bonds UK – Choose a Broker

In order to invest in bonds in the UK – you will first need to choose a suitable broker. Consider the brokers listed below to invest in bonds safely and conveniently.

  • eToro – Overall Best Place to Invest in Bonds UK
  • Capital.com – Trade Bonds at 0% Commission
  • AvaTrade – Credible Broker to Trade Government Bonds With Leverage

You will find a full review of each bond broker further down in this guide.

How to Invest in Bonds UK – A Quick Guide For 2021

When learning how to invest in bonds in the UK, the process can be completed relatively quickly when using a broker like eToro. This top-rated FCA-regulated platform allows you to invest in bond ETFs – meaning that you can diversify at the click of a button.

Here’s what you need to do:

  • Step 1: Open an Account with eToroTo open an account at eToro, click on the ‘Join Now’ button – which you find on the provider’s homepage. Next, enter your personal information so that eToro knows who you are.
  • Step 2: Upload Your ID – For verification purposes, upload a copy of your passport or driver’s license. You also need to upload a utility bill or bank statement as proof of address.
  • Step 3: Deposit Funds – Now that you have an eToro account – you will need to deposit at least $50 (about £36). eToro supports Visa, MasterCard, Maestro, Paypal, Neteller, bank transfers, and more.
  • Step 4: Search for Bond Instrument – eToro supports plenty of bond ETFs – all of which can be purchased at 0% commission. Simply use the search function to find your desired asset.
  • Step 5: Invest in Bonds – Once you have found the bonds that you wish to invest in, click the “Trade’ button to populate an order box. Then, enter your investment amount (minimum $50) and click on ‘Open Trade’.

By following the quickfire walktbough above, you have just learned how to invest in bonds in the UK!

67% of retail investor accounts lose money when trading CFDs with this provider.

Where to Invest in Bonds UK  – Full Broker Reviews

Buying bonds in the UK can be challenging for a retail client – as many brokers require a huge minimum investment. Nevertheless, we have done the hard work for you by reviewing three of the best brokers that allow you to trade or invest in bonds from the comfort of your home.

1. eToro – Overall Best Place to Invest in Bonds UK

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eToro is an award-winning online broker that is home to over 20 million clients – many of which are beginners looking to invest for the first time. The platform is well regulated, with licenses from the FCA, ASIC, CySEC, and SEC. As a UK investor, you will also benefit from the protection of the FSCS, which covers your funds up to the first £85,000. In terms of supported markets, eToro is strong when it comes to bond ETFs. This allows you to invest in thousands of bonds via a single trade.

The ETF provider in question will subsequently buy, sell, and trade bonds on your behalf, so this allows you to gain exposure in a passive manner. Additionally, when you invest in bond ETFs at eToro, you will receive quarterly dividends. This is paid by the ETF provider and forwarded to your eToro account. Best of all, both stocks and ETF investments at eToro are offered on a 0% commission basis. Plus, if your chosen bond instrument is listed on the London Stock Exchange, eToro will waiver the 0.5% stamp duty tax.

etoro review

When it comes to account minimums, eToro simply requires an initial deposit of $50 or more. You can then invest this $50 straight into your chosen ETF, irrespective of the price that the instrument is trading at. Supported payment methods at eToro include debit and credit cards, e-wallets like Paypal and Skrill, and standard UK bank transfers. In addition to bonds, eToro also offers thousands of stocks from 17 UK and international markets.

You can also trade cryptocurrencies, hard metals, energies, indices, forex, and more. You might also like the Copy Trading tool that is offered by eToro, which allows you to invest passively. This is because you will be investing capital into an eToro trader, so all their positions will be mirrored in your own account. If you like trading and keeping tabs on your investments on the move – eToro also offers a mobile app. This is compatible on both iOS and Android devices and connects to your main eToro account.

Pros

  • Invest in stocks at 0% commission and ZERO stamp duty
  • Minimum investment per stock investment is $50
  • Supports debit/credit cards, e-wallets, and UK bank transfers
  • Regulated by the FCA and covered by the FSCS
  • Used by over 20 million people
  • Perfect for beginners
  • Social and copy trading tools

Cons

  • Perhaps too basic for technical traders
  • No support for MT4 or MT5

 67% of retail investor accounts lose money when trading CFDs with this provider.

2. Capital.com – Trade Bonds at 0% Commission

capital.com review

Capital.com is a great platform if you want to buy and sell bonds on a day trading basis. This is because the broker specializes in CFDs (contracts-for-differences) and spread betting markets. On top of stocks, forex, commodities, and indices – Capital.com also offers a number of markets that track bond ETFs. For instance, one of the most traded products on this platform is the ABF Singapore Bond Index. You also have the likes of the iShares iBoxx $ High Yield Corporate Bond ETF and iShares 1-3 Year International Treasury Bond ETF.

These bond CFD instruments come with a number of benefits in comparison to traditional investments. For example, when setting up your order, Capital.com allows you to choose between a long or short position. This gives you the opportunity to profit from both rising and falling bond prices. Plus, Capital.com allows you to apply leverage to your trades. On bond ETFs, this permits leverage of up to 1:5 – which is five times your initial stake.

capital.com review

If you decide to trade bonds via the Capital.com spread betting platform, you will also avoid the need to pay any capital gains on your profits. In terms of getting started, Capital.com allows you to deposit funds with a debit/credit card or e-wallet from just £20. The minimum deposit increases to £250 should you wish to transfer funds from your UK bank account. If you like the sound of trading bond CFDs at this platform but you have little to no experience of this investment niche – you might consider the Capital.com demo account.

This allows you to trade financial instruments with paper money. As such, this is a great way to learn the ropes not only of Capital.com – but leveraged bond CFDs. When it comes to fees, Capital.com is licensed by four reputable bodies – namely, the FCA, ASIC, CySEC, and NBRB. Plus, UK traders also benefit from the protection of the FSCS. Finally, Capital.com offers industry-leading fees, as deposits, withdrawals, and trading commissions amount to 0%.

Pros

  • Top-rated spread betting and CFD broker
  • Licensed by the FCA, ASIC, CySEC, and NBRB
  • £20 minimum deposit (debit/credit cards and e-wallets)
  • 0% commission on all markets
  • Tight spreads and no fee on deposits or withdrawals
  • Supports thousands of financial markets
  • Convenient for newbies

Cons

  • Experienced traders might consider the broker too basic
  • £250 minimum deposit on bank transfers

Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 78.77% of retail investor accounts lose money when trading spread bets and/or CFDs with this provider.

3. AvaTrade – Invest in Bonds via Leveraged CFDs

avatrade review

Another CFD and spread betting broker that you might want to consider is AvaTrade. This platform offers a number of CFD markets that track government bonds. This includes bonds issued by the governments of Japan and the US, alongside the European Central Bank (ECB). When trading government bonds in this manner, AvaTrade will offer you leverage of up to 1:20.

This means that by risking £100, you can turn this into a position worth £2,000. AvaTrade also permits long and short trading, so it’s a great platform to invest in bond CFDs in a flexible manner. Additionally, AvaTrade not only offers some of the most competitive spreads in this market, but you can also trade at 0% commission.

avatrade review

Both deposits and withdrawals are fee-free, too. We should also note that on top of bonds, AvaTrade supports markets on stocks, ETFs, forex, digital currencies, commodities, and more. When it comes to supported payment methods, AvaTrade accepts debit/credit cards and UK bank transfers, and the minimum initial deposit amount stands at £100.

Pros

  • Regulated in seven jurisdictions
  • 0% commission on all supported markets
  • Offers spread betting and CFD instruments
  • Minimum deposit of just £100
  • Free demo account
  • Supports MT4 and MT5

Cons

  • Spread betting department limited to just 200+ financial markets
  • No support for instant bank transfers

Trading CFDs and FX Options entail risk and could result in the loss of your capital.

How to Invest in Bonds UK – Detailed & Explained in Full

If you are looking to invest in bonds in the UK but don’t quite know where to start – we have prepared a detailed and explain walkthrough. Within it, we will show you how to open an account with an FCA-regulated broker like eToro, deposit funds, and invest in your chosen bond instrument. In fact, by following the tutorial below, you will learn how to invest in bonds in the UK in less than 10 minutes!

Step 1: Open a Broker Account

You will first need to register an account with eToro – which shouldn’t take you more than a few minutes. First, visit the eToro website, click on the ‘Join Now’ button, and fill out the sign-up form. This will invariably require you to provide eToro with your personal information and contact details.

how to join etoro

Once your eToro investment account has been opened, you will then be asked to go through a quick KYC process. This simply requires you to upload a copy of your ID and proof of address. If, however, you don’t have these documents to hand right now -= you can come back to this step at a later date. This is on the proviso that you now depositing more than $2,250 – or about £1,600.

67% of retail investor accounts lose money when trading CFDs with this provider.

Step 2: Deposit Investment Funds

The next step is to add some investment funds to your eToro account. As noted earlier, the minimum deposit requirement at this brokerage stands at just $50. This is ideal for those of you that wish to invest in bonds with a small amount of capital.

Deposit Funds

In terms of supported payment methods, eToro allows you to deposit funds with a debit/credit card issued by Visa, MasterCard, or Maestro. You can also use Paypal, Skrill, or Neteller, or simply stock with a traditional bank transfer.

Step 3: Choose Bond Investment Market

At eToro, the best way to invest in bonds in the UK is through an ETF. As we explain in more detail shortly, this allows you to invest in thousands of individual bonds via a single trade.

invest in bonds etoro

For this tutorial, we are looking to invest in the Vanguard Total Bond Market ETF. We can go straight to the relevant market by searching for the bond instrument and clicking on the ‘Trade’ button.

Step 4: Invest in  Bonds

The final part of the investment process is to place a buy order. For this, all you need to do is enter the amount of money that you want to invest. In our example, we are looking to invest $50 into this bond ETF – which is the minimum requirement stipulated by eToro.

invest in bonds

To enter your bond trade, simply click on the ‘Open Trade’ button.

How to Invest in Bonds UK – The Basics

Although bonds offer a simple and passive way to invest money into the financial markets, it is still important that you have a firm grasp of the basics. After all, there are certain terms that must be understood before you can invest – such as maturity, yield, and coupon payments.

You can also need to consider the various types of bonds – such as those issued by governments and corporations. And of course, don’t forget about the risks when learning how to invest in bonds in the UK.   

In the sections below, we cover the basics of what a UK bond investment entails so that you can enter this marketplace with your eyes wide open.

Bond Types

When you invest in bonds in the UK, you will quickly notice that there are two main types of instruments in this marketplace. This consists of bonds issued by governments as well as corporations.

  • Government Bonds: When investing in bonds issued by a government from a strong economic region – such as the UK, Japan, EU, or the US, then the risks of default of virtually non-existent. While this is great for those seeking a low-risk way to invest money, the yields on offer will be somewhat unattractive.
  • Corporate Bonds: You can also invest in bonds issued by corporations. These are large-scale companies that need to raise capital – and decide to do so through a bond issue. Naturally, without the backing of a government or central bank, corporate bonds come with additional risk. But, in turn, the yields offered can be a lot more attractive.

In choosing which bonds to invest in, you need to consider a full host of factors – such as the risk of default and the amount of interest being offered.

Bond Maturity

All bonds have a set maturity date – which simply refers to the duration of the agreement. For example, let’s suppose that you invest in a bond that matures in 10 years.

etoro buy bonds

This means that you will invest money into the bond and receive interest payments for a 10-year period. Then, when the bonds mature, you will receive your initial investment back. This is known as the ‘principal’.

Coupon Rate

Often confused with the yield, the coupon payment refers to the fixed rate of interest that you will be paid while holding a bond. For example, let’s say that you invest in bonds in the UK with a 5-year maturity and a coupon rate of 10%.

If you decided to invest £10,000, this means that each year, you will receive a payment of £1,000 from the bond issuer. This payment will continue to come for a period of 5 years. Then, when the bonds eventually mature, you will receive your £10,000 principal back.

Bond Yield

When learning how to invest in bonds in the UK, it is also important for you to have a grasp of the yield. This refers to the rate of return that the bond generates based on market forces.

  • For example, let’s suppose that you invest in corporate bonds with a coupon rate of 7%.
  • Two years later, the company issuing the bonds is in a great state of financial health.
  • As such, because the probability of the issuer defaulting has been reduced, the yield of the bonds will go down.
  • This means that you will need to pay a premium to buy the bonds.
  • Similarly, if the respective bond issuer is struggling financially, then you should expect the yield to increase.
  • This means that you can invest in the bonds at a discount. But, the bonds will also come with more risk – as the probability of default has also risen.

On the other hand, if you are planning to keep hold of your bond investment until the date of maturity, there is no requirement for you to take notice of the running yield. This is because you will continue to receive the fixed rate of interest that was attached to the bonds when you originally invested. In other words, the yield will only come into play should you wish to buy or sell bonds after they have already been issued.

Best Ways to Invest in Bonds UK

As we briefly covered earlier, when you invest in bonds in the UK, you often have to meet a huge minimum lot size. For example, although the initial price of the bonds might stand at just £100 each, the issuer might require a minimum order of 1,000 units.

This would therefore require a minimum total outlay of £100,000. This makes it a lot more efficient for bond issuers, as they sell to large-scale investors in bulk – as opposed to collecting funds from small-time retail clients.

Nevertheless, not all is lost, as there are still many ways in which you can invest in bonds in the UK – which we unravel in the sections below.

Invest in Bonds via an ETF

Make no mistake about it – the very best way to invest in bonds in the UK is via an ETF. First and foremost, ETFs are traded much like stocks and shares. This is because the ETF will be listed on a public exchange – such as the LSE or NYSE. This means that you can invest with a small amount of money.

Furthermore, and perhaps most importantly, when you invest in bonds via an ETF, you can do so in a completely passive manner. This is because the respective ETF provider will determine which bonds to buy and sell – and when. Plus, to avoid putting all of your eggs into one basket, ETFs will typically invest in thousands on individual bonds across a variety of risk levels, maturity dates, and coupon rates.

vanguard total bond market etf

Let’s take the Vanguard Total Bond Market ETF (BND) as a prime example. This leading ETF will give you exposure to no less than 10,000 individual bond instruments. These bonds come from a variety of sectors -covering both corporate and government issuers. This ETF holds bonds with a wide variety of yields and coupon rates, and the average maturity date currently stands at just under 9 years.

As an investor in this ETF, you will be entitled to your share of coupon payments that the provider collects. In fact, Vanguard will distribute a payment every month, meaning you can easily reinvest your dividends back into the financial markets to benefit from compound interest. If you like the sound of this bond ETF, you can make an investment at eToro from just $50 on a 0% commission basis.

67% of retail investor accounts lose money when trading CFDs with this provider.

Invest in Bonds via CFDs

Another option you have when learning how to invest in bonds in the UK is to engage in CFD trading.

  • This means that you can speculate on the future value of bond yields without needing to take ownership of anything.
  • This is because the CFD instrument will track the real-time price of the respective bonds on a second-by-second basis.
  • Your job is, therefore, to assess whether you think the bond yield will rise or fall.

Platforms like Capital.com and AvaTrade give you seamless access to a variety of government-issued bonds via CFDs. Not only can these be traded with leverage, but on a 0% commission basis. Plus, unlike traditional bond instruments, you can exit your CFD positions at any given time. This ensures that your investment capital is not locked up until the maturity date comes around.

If you are somewhat perplexed about how bond CFD trading works – check out our simplistic example below.

  • Let’s say that you decide to trade US Treasury bonds – which are issued by the Federal Reserve
  • At eToro, you can trade this marketplace via an iShares ETF
  • Now let’s say that you think the yield is currently undervalued, so you decide to place a buy order
  • On this trade, you risk £500 with leverage of 1:5
  • A few days later, the yield on US Treasury bonds has increased by a nominal amount of 4%
  • This means that on a £500 trade, your 4% gains amount to £20
  • As you applied leverage of 1:5, your profit is amplified to £100

As you can see from the above, bond CFD trading is great for entering buy and sell positions on a short-term basis. If, however, you wish to invest in bonds in the UK on a longer-term basis, ETFs will be more suitable for your financial goals.

67% of retail investor accounts lose money when trading CFDs with this provider.

Invest in Bonds via UK Gilts

If you are looking to invest in bonds issued by the UK government – you will be buying ‘gilts’. The benefits of investing in UK gilts are two-fold. First, as the government is backed by the Bank of England, the probability of default is virtually zero.  After all, if the UK government is unable to meet its repayment obligations, it can simply issue more bonds or borrow additional capital.

uk gilts yields

Secondly, you actually invest in gilts directly from the UK Debt Management Office website. This makes it easy to invest – especially if you are a beginner. However, the overarching drawback with UK gilts is that the interest on offer is nothing short of a pittance.

In fact, at the time of writing, the coupon rate on a 10-year gilt amounts to just 0.25%. This means that by investing a principal amount of £10,000, you would receive an annual payment of just £25! This coupon rate would not even allow you to outpace inflation and thus – we would argue that gilts are best avoided.

Invest in UK Savings Bonds

Another low-risk option you have is to invest in savings bonds. These are bonds issued by UK banks and building societies. If electing to use a provider that is covered by the FSCS – then your savings bond investment is risk-free up to the first £85,000.

However, much like the previously discussed gilts, savings bonds in the UK also pay an unfavorable rate of interest. For example, at the time of writing, we found that the highest yield on offer is 2.05% annually across a 5-year duration. These savings bonds are issued by Gatehouse Bank – which requires a minimum outlay of £1,000.

Are Bonds a Good Investment?

Bonds are super-popular with investors that require a solid and predictable inflow of cash. However, bonds won’t be suitable for all investor profiles, so it’s important to consider both the benefits and drawbacks before proceeding.

In the sections below, we explore some of the reasons why investing in bonds can be beneficial for your portfolio.

Predictable Returns

When you invest in stocks and shares, there is no knowing how much money you will make. In fact, your investment could just as easily result in a loss. On the other hand, although bonds are not risk-free, they do allow you to have a clear understanding of what returns are on the table.

This is because when you invest in bonds in the UK – the respective issue will offer a fixed rate of interest. This allows you to plan accordingly, as you will know exactly when each coupon payment will arrive.

Passive Investing

Another reason why you might want to invest in bonds in the UK is that this marketplace offers a passive trading experience. After all, once you purchase your chosen bonds, there is nothing else for you to do until they mature.

During this period, you will continue to receive your coupon payments. Once again, this is in stark contrast to stocks, as you need to constantly be watching over the market to assess whether the time is right to cash out.

Furthermore, if you elect to gain exposure to bonds via an ETF, this makes the investment experience even more passive. This is because the ETF provider will determine which bonds to buy and sell, and when.

Dividend Reinvesting

Seasoned investors will typically reinject dividends back into the financial markets. This allows them to benefit from compound interest, which can facilitate wealth growth at a much faster rate.

As a bond investor, you will receive interest every 6 or 12 months. depending on the terms outlined by the issuer. This means that every time you receive a payment, you can instantly reinvest the funds into other bonds.

Low-Risk

All bonds investments come with an element of risk. But, certain bonds offer a very low level of risk – such as those issued by strong economies. As we covered earlier, if you invest in bonds issued by the US or UK government, the chance of default is pretty much non-existent.

This is because the respective government can simply print more money to meet its obligations. Similarly, if you were to invest in bonds issued by an established blue-chip company – such as JPMorgan Chase or Apple, this equally presents a low level of risk.

Risks Bonds?

If you’re still thinking about whether or not bonds are right for you and your financial goals, you should spend a bit more time researching the risks of this marketplace.

The most important considerations to make when investing in bonds are as follows:

Limited Returns

In comparison to stocks and shares, the returns on offer when investing in bonds will be somewhat limited. Sure, coupon rates will vary from issuer to issuer, and some bonds can yield in excess of 10% annually. But, by investing too much of your capital into bonds, you might be missing out on more favorable gains.

tesla stock pricer

Let’s take the S&P 500 as a prime example. This stock market index tracks the performance of 500 large companies from the US – covering everything from Apple, Amazon, and Tesla to IBM, Ford, and Disney. Had you invested in this index fund 12 months prior to writing this guide, you would now be looking at gains of 35%.

You then have individual success stories like Tesla, which over the past 5 years alone has increased its stock price value by over 3,000%. With this in mind, if you are going to invest in bonds in the UK, then it’s also worth diversifying into other asset classes. Not only will this reduce your long-term risk, but it will ensure that you have exposure to faster-growing assets.

Liquidity

Another huge risk to consider when learning how to invest in bonds in the UK is that of liquidity. By this, we mean that once you purchase a bond, you won’t be able to cash out until it matures.

  • Baring in mind that bond durations can vary from a few months to 30+ years, you might have a considerable amount of time before you get your original investment back.
  • In some cases – such as when you buy government bonds issued by the UK or the US, you can often cash out before the instruments mature.
  • But, this also presents a risk in itself, as you might get back less than you originally invested if the running goes against you.

At the other end of the spectrum, the likes of stocks and ETFs can be cashed out at any given time provided that the markets are open.

Defaults

Although bonds typically carry less risk than stocks, you still need to remember that defaults can and will happen. This means that the company or government behind the bonds fails to make an interest payment. In an even worse scenario, there is every chance that the issuer is unable to repay the principal – which means you could lose your initial investment.

The Cost of Investing in Bonds in the UK?

When you invest in bonds in the UK, you might need to pay an assortment of fees. This will, however, depend on the type of bonds you are looking to invest in and the broker facilitating the transaction.

Deposits Fees

Many investment platforms in the UK charge a deposit fee. This will eat into your potential bond coupon payments, so be sure to check this before opening an account with the respective broker. For example, if your broker charges a deposit fee of 1% and your chosen bonds yield 3% annually, you’ve already reduced your first-year gains to 2%.

Dealing Fees

Once you have funds in your brokerage account, you can then proceed to invest in bonds. However, your chosen broker will need to collect a commission from you for facilitating the deal.

For instance, at Hardgreaves Lansdown, the broker requires most bond investments to be completed over the phone. In turn, this will result in a commission of 1%. You can, however, also invest in bond ETFs with a broker like eToro without needing to pay any commissions.

How to Invest in Bonds UK – Conclusion

If you’ve read this guide from start to finish, you should now know the ins and outs of how to invest in bonds in the UK. We have explained that when buying bonds directly from the issuer, you are likely to need a significant amount of capital.

This is why we much prefer investing in a bond ETF with a broker like eToro. Not only can you invest at a minimum of just $50 – but ETFs at eToro are commission-free. Plus, by electing to take the ETF route – you will often be investing in thousands of different bonds – all through a single trade. 

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  • Invest in a wide range of cryptocurrencies
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  • eToro crypto wallet included which makes it beginner-friendly
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About Kane Pepi PRO INVESTOR

Kane Pepi writes for several high profile publications such as InsideBitcoins, the Motely Fool, and Learnbonds. Based in Malta, Kane is extremely skilled at complex subjects related to financial matters - including a Bachelor’s Degree in Finance, a Master’s Degree in Financial Crime, and actively engaged in Doctorate Degree research, for the money laundering threats of the blockchain economy.