What is a gilt?

Find out what gilts are, how they work and how to get your hands on some

Gilts are a type of investment that’s typically considered to be safer than investing in individual companies. This is because they’re essentially loans that you make to the government. A gilt is simply a word for a UK government bond — you can also get corporate bonds, which is where you lend your money to companies. During the term of the gilt, you’ll receive income from the gilt, and at the end you’ll get your investment back. Gilts are a little complicated, but they make sense once you know the lingo and how they work — here’s everything you need to know about gilts.

How do gilts work?

Gilts are used by the UK Government to raise money, usually to cover shortfall between public spending and income from taxes, so when you buy a gilt or bond, you’re basically lending the government money. In return, they give you a gilt, which can be thought of as an IOU (‘I owe you’). You can wait until your gilt matures (usually quite a few years) or you can sell it and (hopefully) make a profit, in the same way you would with stocks and shares.

Gilt jargon explained

There’s some strange jargon used with gilts that you don’t see much in the sector, here are some of the terms you’ll come across with gilts:

Nominal value. Also known as “par value”, this is how much the government will pay back on the redemption date. It’s typically the amount it was originally sold for.
Redemption date. This is a date after the gilt was issued that the government will pay back the loan — this is usually between 5 and 30 years.
Coupon.. This is the annual interest you’ll receive – this might change with inflation if it’s “index linked”

Gilts are issued in £100 units, so the nominal value of each gilt will be £100. If you buy a gilt from anywhere other than the Debt Management Office then it may have a different nominal value to the amount you paid for it.

Say the government wanted to raise £100 million, it would issue 1 million gilts at the value of £100 each.

Gilt example

Say you invest £1,000 in a gilt with the name “4% Treasury Gilt 2035”, which is how gilts are typically named.

This means you’ll receive 4% of the nominal value(£1,000) every year until it matures. It’s the same as an interest rate.

So in this case you’ll receive £40 every year until 2035. In addition to this, in 2035, you will also get back the £1,000 investment in full.

Why do gilts change in price?

The main thing which influences the price of a gilt is the interest rate.

If interest rates rise, gilts usually fall in value and vice-versa. If you can get a gilt which offers a better exchange rate than high-street banks do, you can be certain that the demand (and price) of gilts will go up.

Likewise, if gilts are offering poor interest rates, they are less attractive to investors and become much cheaper.

An example of how gilt prices change

If gilts are unpopular, you might be able to pay £90 for a £100 gilt. On the other hand, if demand is high, a £100 gilt might cost you £110. Regardless of the purchase price, the gilt coupon is always paid on the nominal value of the gilt, £100.

If you manage to buy a gilt for less than its nominal value, you will get a higher return on your investment.

What is a gilt yield?

Yield is often confused with the coupon. The yield of a gilt is calculated by dividing the coupon by the price paid for a coupon. That’s the price paid not the nominal value.

There is what is called an ‘inverse relationship’ between gilt prices and yields. If the price of a gilt rises, the yield falls. If the price of a gilt falls, the yield rises.

People like to look at yields over time frames. For example, a 10 year gilt yield, a 15 year gilt yield and so on. This is because of the gilt’s appeal to long term investors.

In short, you probably want a high yield!

Can you trade gilts?

You can sell gilts just as you sell stocks and shares. This opens up a whole market of buyers and sellers, looking for the right price.
If gilts are popular, you might have to pay over the odds for one. A £100 gilt might cost £110. On the other hand, if gilts are unpopular, you might be able to buy the same gilt for £90.

People might choose to sell their gilts before maturity and to cash in on the nominal value sooner rather than later. Market conditions cause price to fluctuate, opening up the possibility to make profit (or loss) on the buying and selling of gilts.

Should I buy gilts?

As with any investment, it’s up to you. As always your capital is at risk. Gilts can be profitable, but you can also make a loss.

Here are some of the reasons people invest or don’t invest in gilts:

  • Safety. The UK Government has never failed to pay back a gilt. It has always paid back the investment and always paid the coupon. There is almost zero risk as the Government is unlikely to default.
  • Predictability. Income is regular, as explained above. Once you’ve done the calculations, you can work out almost exactly how much income you’ll receive from a gilt investment. It’s for this reason that gilts make up a significant chunk of many pension fund portfolios.
  • Low yields. Especially in the last few years, yields on gilts have slowed. A UK Gilt today offers less than 2% for all terms (from 2 to 30 years). Not a great way to grow savings, let alone achieve substantial capital growth.

How to buy gilts

There are two ways to buy gilts.

  1. Through the Government’s Debt Management Office (DMO)
  2. Through the market, via the Bank of England’s brokerage service. This allows stock to be bought and sold through any main Post Office branch.

Types of gilt

This page has been referring to the most common type of gilt, the conventional gilt. There are other types of gilt, including:

  • Index-linked gilts. These take inflation into account, and interest and capital is scaled accordingly.
  • Strippable gilts. This means the individual interest and redemption payments of the gilt can be bought and sold separately.

Why is it called a gilt?

The exact definition can sometimes be vague and unhelpful. When most people say gilt, they’re referring to UK Government bonds. While originating in Britain, the term is also used in South Africa and India, and is short for “gilt-edged securities”.

Gilt-edged is a phrase used to describe something of the highest quality or value. Originally, gilts were literally gilt-edged certificates and the name has stuck since then.

Compare share trading providers

You could access gilts through gilt exchange-traded-funds (ETFs). These are a type of ETF, so don’t behave like conventional gilts, they’re traded on stock exchanges, so you can invest through a typical trading platform.

1 - 6 of 6
Name Product Price per trade Frequent trader rate Platform fees Brand description
eToro Free Stocks
Capital at risk. 0% commission but other fees may apply. The minimum deposit with eToro is $50.
IG Share Dealing
UK: £8
US: £10
EU: 0.1% (min €10)
UK: £3
US: £0
EU: 0.1% (min €10)
Get 0% commission on US shares when you make 3+ trades in the previous month.
IG is good for experienced traders, and offers learning resources for beginners, all with wide access to shares, ETFs and funds. Capital at risk.
Hargreaves Lansdown Fund and Share Account
Hargreaves Lansdown is the UK's number one platform for private investors, with the depth of features you'd expect from an established platform. The minimum deposit with HL is £1. Capital at risk.
Finder Award
Receive a free share worth at least £10 when you deposit £50 within 30 days into your account. Terms & conditions apply.
Degiro Share Dealing
UK: £1.75 + 0.014% (max £5)
US: €0
Degiro is widely seen as one of the best low-cost share brokers, for people who are looking to trade regularly. The minimum deposit with Degiro is £0. Capital at risk.
interactive investor Trading Account
£5.99 (plus 1 free trade each month)
£9.99 per month
Interactive Investor offers everything most investors need. Its flat fees makes it pricey for small portfolios, but cheap for big ones. The minimum deposit with ii is £0. Capital at risk.

Compare up to 4 providers

All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please seek out a financial adviser. Capital at risk.

All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please seek out a financial adviser. Capital at risk.

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