Top 10 UK Bond Brokers
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eToro - #1 Bond Brocker
What Are Bonds?
A bond is a loan offered by a government, business or other organisations where investors can make a fixed investment and get a predictable return over a specified period.
The bond is for a specific duration and the investors earn an income from interest (known as the coupon).
Bonds are a popular method of investing for income rather than capital growth for stability and known income in a portfolio, allowing investors to match future returns to future liabilities. Coupons can be variable or fixed rate, so income comes throughout the period of the bond – which could potentially be 30–50 years.
Bonds have a nominal rate of £100 (UK) or $1,000 (US), but these prices can fluctuate when it first comes to the market and throughout the term, although those with short durations are less likely to change over time.
Prices fluctuate because of supply and demand, the credit rating of the company issuing the bond, the coupon rate and how close it is to the end of the term.
The nominal rate is described as the ‘par value’ and is the face value of the bond.
Although bonds are seen as less risky investments than equities because they offer predictable income and returns, negative interest rates can influence the return, causing investors to take on more risk.
What Are the Different Types of Bonds?
There are several types of bonds available, each with different risk profiles and possible returns.
Bonds are rated based on risk and credit ratings by institutions like Moody’s and Standard and Poor’s to ascertain the financial stability of the entity – and therefore determine the likelihood of bonds being repaid and the interest rates being met.
Bonds are rated on an alphabetic scale, with the top rating being AAA and riskier bonds at a C or below.
Often referred to as Gilts in the UK, government bonds are issued by government agencies and national treasuries.
They are considered low risk as it is more likely that the coupon and the return are likely to be paid and the conditions of the bond will be met.
A supranational bond has a similar risk profile but tends to be issued from banks.
In general, corporate bonds are a relatively safe fixed income investment. Investment-grade corporate bonds are the most common, issued by companies with a high credit standing.
Corporate bonds tend to offer a higher coupon threshold than government bonds so offer more income.
Junk bonds are essentially corporate bonds from companies with a lower credit rating. They are considered much higher risk but offer a greater return if the risk pays off.
Junk bonds are often offered by companies that are going through some kind of financial struggle and need an injection of cash.
Savings bonds are offered by banks and building societies and are popular with retail investors, especially those with little experience of investing.
With low prices for investing and relatively low risk, savings bonds can fluctuate quickly but the maturity terms are often lengthy.
Who Regulates Bond Brokers?
Bond brokers in the UK are regulated by the Financial Conduct Authority (FCA). Other bond brokers in other countries that trade in the UK should be regulated in their own countries as well as the FCA.
Look for regulation agencies like CySEC and ASIC for further confirmation that the broker will be held accountable if there are any problems.
Why Use a Bond Broker?
Investing in bonds as a retail investor can be difficult without a brokerage. Bond brokers specialise in bonds and other fixed-income securities, allowing private clients to invest and trade in bonds.
Bonds can be issued in very large denominations, sometimes in the billions, so investing directly needs considerable capital. A bond brokerage can get clients exposure to the bond markets with smaller capital amounts.
Bond brokers can offer investment into bonds as well as trading with bond ETFs, acting as intermediaries and, in some cases, providing research and education.
Bond brokers tend to charge either a commission or a fixed fee for trading.
Top 10 UK Bond Brokers
Fees: Include a $10 inactivity fee and $5 withdrawal fee, but there is no commission on bonds. There are costs for conversion as all currency is in dollars.
eToro is based in Israel and was founded in 2007. With millions of clients in over 140 countries, eToro has a strong focus on forex and cryptocurrency but also offers 253 exchange-traded bonds in 16 countries.
- For beginners, the opportunity to copy trades is a draw of eToro, and this works with forex, crypto and EFTs
- No commission
- Currency needs to be converted into dollars for use on the platform, and the conversion attracts a fee
67% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
2. City Index
Fees: Depend on how they are invested. There is a 0% commission on spreads, but if investing in share CFDs there is commission payable. There are no withdrawal fees, however.
City Index was founded in 1983 and is a UK brokerage that is well-organised and competitive. Great for new and mid-level investors because it offers a huge amount of education options.
- Industry-leading customer support department
- Huge range of investment options
- Fees can be complicated
3. CMC Markets
Fees: Vary but average about 0.1% commission
CMC Markets was founded in 1989 and is a UK-based broker that is publicly traded.
CMC Markets offers a comprehensive government bond listing and is good for beginner investors.
The CMC ‘Next Generation’ trading platform is modern, easy to use and available on multiple platforms including smartphones.
- Well regulated
- Upfront fees
- Must choose between CFDs and spread betting rather than just investing
Fees: Vary depending on trading styles. There are no withdrawal fees, but a percentage is charged for trading.
- Heavily regulated and considered a safe option
- Segregated client accounts held at Tier 1 banks
- Slower account opening
- Higher fees
Fees: Although there are no withdrawal fees and most costs are included in the spread, there are so-called ‘general costs’ that are not very transparent.
Saxo was founded in 1992 in Denmark but has been operating in the UK since 2006. Saxo positions itself as a leading Fintech specialist that is most suitable for larger or more experienced traders. The costs can be confusing.
- Large portfolio
- Great platform
- High fees and minimum costs
Fees: €3 +0.03% per bond
DEGIRO is a Dutch company that was launched in 2013. Over 1 million customers across Europe take advantage of incredibly low fees and multiple account options across various platforms.
Although the fees are low, there are limited options for education so this can be a turn off for new investors who want to understand the investment market.
- Competitive charges
- Works with dozens of financial markets
- DIY brokerage – no financial advice or trading tips
Fees: Range from £5.95 – £11.95 per bond deal made
Hargreaves Lansdown was founded in 1981 and is a market leader in the UK.
A tiered fee structure and outstanding education makes Hargreaves Lansdown popular with new and mid-level investors, although its fees may be pricier than others.
Hargreaves Lansdown offers industry leading in-house research and commentary on all things trading, making it a great resource as well as a leading broker.
- Easy to use platform
- Great customer service
- High fees
Fees: Tiered as follows: Investor (£9.99 a month + £7.99 per investment), Funds Fan (£13.99 a month, £3.99 for funds + £7.99 per share) and Super Investor (£19.99 per month + £3.99 per investment).
Founded in 1995, Interactive Investor is a bond broker that offers flat fee pricing as a monthly subscription, based on usage and type of investment.
It is a cost-effective option for frequent use but can be expensive for one-off investments.
- Good for large investors
- Wide range of investments
- Flat-fee pricing is relatively expensive for small investors
Fees: 0.01% commission with a minimum of £1.
Interactive Brokers was founded in America in 1978, and the trading technology that is used to provide financial services is simple to use. It is available on computer and smart phones.
- Lowest prices on the market in most cases
- ‘Lite’ option is simple to use for casual investors
- Account opening can be complicated
Fees: From $1 per bond
While the Fidelity brand is US-based, Fidelity International is a top-quality brokerage that offers a range of investment options in the UK.
With great research into trends and commentary on investments, Fidelity International is a global broker great for all levels of investors.
- Low non-trading fees
- User-friendly platform
- Limited portfolio
Bonds make a mostly reliable investment that offers an income as well as a return at the end of the term.
When considering bonds, decisions should be made depending on the credit rating of the entity issuing them. The higher the rating, the less risk in investing – although returns might not be as high.
The highest credit ratings tend to be in Gilts (government bonds) and supranational bonds as well as savings bonds, but corporate bonds offer higher coupon rates. Junk bonds are riskier but often have higher returns if they are completed.
Bonds will have a coupon (interest) rate and a maturity date. This describes the monthly income from the bond as well as the duration of the loan – and when the repayment of the amount will occur. The par value will be the repayment value at the end of the term.
Choosing the right bond broker for your investments is a personal choice, but there are certain things that are important. A well-regulated broker means that your investment will be safer, and while lower fees might be a draw getting support and education alongside research and commentary is useful if you want to understand how best to invest.
WikiJob does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal capital.