Gilts

Gilts are government bonds: essentially they represent an investment in the government of the United Kingdom. You buy bonds with a certain value and are entitled to a certain interest rate per hundred pounds per annum. The bond interest will be paid to you every six months for a fixed term, after which your bond will mature and your original investment will be returned but you will receive no further interest payments. The gilts are usually given names that indicate the interest they pay and the term for which they are valid, such as Treasury 7% 2020: this would pay a seven percent interest rate per hundred pounds until the year 2020. You do not always have to pay the face value of the bond; it may be possible to pay one hundred and ninety pounds for a bond valued at two hundred pounds.

You will be paid interest based on the face value of your bonds, and on maturity the government will have to repay you the face value of the bond regardless of how much you paid for it. Index-linked gilts even ensure the interest payments made and the value of the bond on maturity are increased in line with inflation, and so the risk of your money losing its value over time is eliminated. Gilts are very secure investments; the government always pays the money due and there is no risk to your initial investment. However, neither the interest paid nor the bond value on maturity are tax-free investments. For more information on gilts and how to buy them visit the UK Debt Management Office online or ask an independent financial advisor whether they would be a suitable investment for you.