Watch this video before you buy a retail bond

By Deputy Editor Tim Bennett Sep 23, 2011

Tim Bennett

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If you want a home for your money that is not only safe but offers an inflation-busting return, you could consider retail bonds. But new investors beware: the bond market is quite different from the equities market. Here are seven things you should know before you buy a retail bond.

Related videos

• Beginner's guide to investing: bonds

• Beginner's guide to investing: corporate bonds

• Watch all of Tim's video tutorials here

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Published in Video tutorials | More articles by Tim Bennett

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  • 1. PeterB

    (03 November 2011, 04:12PM)  Complain about this comment

    You said the NG inflation bond pays 1.25% plus the change in the RPI over a defined period. There is only one way to interpret this - you get 6.25% if the RPI goes up 5%.

    Then you said the coupon is based on the change in the INFLATION RATE over the period and gave a worked example where inflation went up by 20% and you got 1.25% plus 20%, ie. a miserable 1.5%. Not quite the same thing, especially if inflation was running at 10% one year and went up to 12% the next year.

    So what's the real explanation?

  • 2. James

    (04 December 2011, 12:18PM)  Complain about this comment

    PeterB, see 09:30 in the video above.

    The 20% example you quoted was inflation linking being applied to the coupon. Inflation linking also applies to the initial capital, which Tim covers later in the video.

    I have to admit to being as confused as you were, initially. ;)

  • 3. Steve Penny

    (22 December 2011, 09:07AM)  Complain about this comment

    It wasn't made quite clear that the coupon you get at redemption is affected by the price you buy at, and therefore a 5% coupon may not be what you actually receive if you paid more or less than the nominal value, because your capital returned at redemption would be less or more than you paid. I must admit I have not viewed your other bond videos, so if this is covered there, sorry.

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