Bonds help I have few questions

soulman247

Hi

I have learned all about saving accounts thanks to this forum, now I need help on BONDS:

1) Where can I buy bonds (can i buy and sell them from https://www.londonstockexchange.com/exchange/user/login.html or
is there a better place.

2) Is Coupon the amount of interest your get paid each year, like on saving account

3) How do i work out if a bond is better then a cash ISA (mine is 4%)

4) Is British telecom 8.5% coupon better then my cash ISA 4%

Margey

Hi

well it depends what type of bonds you are after... if you are looking at Government bonds then the majority of stockbrokers should be able to offer you these services. so it might be good to have a look around at various stockbrokers so you can find out what they will be able to provide in regards to their expertise and experience.

I found this site that could help with finding out what rates are available on the different types of bond.

Hope this helps with some of your questions

Margey

Linton

soulman247 wrote: »

Hi

I have learned all about saving accounts thanks to this forum, now I need help on BONDS:

1) Where can I buy bonds (can i buy and sell them from https://www.londonstockexchange.com/exchange/user/login.html or
is there a better place.

2) Is Coupon the amount of interest your get paid each year, like on saving account

3) How do i work out if a bond is better then a cash ISA (mine is 4%)

4) Is British telecom 8.5% coupon better then my cash ISA 4%

1) You can buy bonds online from some of the standard online brokers just like shares - I know for certain that iii offer this and believe HL do as well.

2) Not quite - I have never bought bonds but I understand you normally buy them on the secondary market, not direct from the company. On the secondary market they will have a price different to the Issue Price. So if they are £100 bonds with a coupon of 8% but a market price of £110 then your interest rate is 7.2%. This is complicated by their being redeemable at a maturity date for the Issue Price. You will see reference to "Effective Yield" which takes into account both the interest you will be receiving and the profit/loss at maturity.

3) I guess effective yield is the right one to use.

4) Firstly bond income is interest and so is taxable unless you have them in an S&S ISA. Not all bonds are eligible for ISAs so you will need to check the details. Then you have the Effective Yield question. Finally bonds generate a better return than cash deposits as they are seen as being riskier. If BT were to go bust you could lose all your investment, though you would be higher up in the queue than a shareholder.

Last point before I forget - if you sell a bond before the maturity date the amount you get would depend on the market at that time. So it is conceivable you could lose money, particularly if you sell before having received interest.

Reaper

Margey wrote: »

I found this site that could help with finding out what rates are available on the different types of bond.

From the sounds of it I don't think this is the type of bond he is after, I believe it is a company bond. This link may be more useful in explaining how they work:
http://www.thisismoney.co.uk/money/investing/article-1714423/Corporate-bonds-A-guide-investing.html

How do i work out if a bond is better then a cash ISA (mine is 4%)

By looking at the yield/running yield, taking into account tax, and making a judgement call on whether you think the company issuing it is likely to go bust (though if it does you are fairly high up the pecking order if it has any assets left).