What Are Bonds?
What are bonds? Simple explanation of fixed-income investing. How bonds work as loans to governments/companies, interest payments, maturity & why they're safer than stocks.
Bonds are one of the core building blocks of investing, but they can feel abstract if you’re more familiar with stocks. The basic idea is simple: with a bond, you’re not buying a piece of a company as you do with stocks; you’re lending money to a government or a company, and they promise to pay you back with interest.
When you buy a bond, you give money to an issuer, usually a government, city, or company. In return, they agree to:
Pay you regular interest, usually at a fixed rate
Return your original amount (the principal) on a specific date, called maturity
If you buy a €1,000 bond with a 4% interest rate and a 5‑year maturity, you typically receive €40 per year in interest and your €1,000 back at the end of year five, as long as the issuer doesn’t default.
Because the payments are defined in advance, bonds are grouped under “fixed income.” They’re generally less volatile than stocks, but that lower risk usually comes with lower long‑term returns.