Saving Bonds, safe investments and great income

Saving Bonds are relatively safe investments. They are an attractive type of long-term savings, generating annual interest.

What are saving Bonds?

The saving bonds are a debt security, issued by the state, local authorities or a company. By acquiring an obligation, a person lends money to the issuer of the bond in exchange for a debt acknowledgment. The issuer undertakes responsibility to repay this debt on an agreed date by adding an annual interest fee. In an obligation, therefore, we must distinguish the nominal value that corresponds to its real value and the income from the obligation that corresponds to the payment of interest. The duration of a bond varies between 5 and 30 years.

How is the repayment of saving bonds?

The bonds can be redeemed in two ways: either the securities are paid in full at maturity (the last day of the loan), or each year, a portion of securities drawn is repaid (repayment by amortization).

The annual remuneration of saving bonds

Saving Bonds are subject to an interest paid each year: the coupon. The interest of a bond will be proposed according to the duration of the compulsory loan. And also to the market conditions at the time of the issue. Interest may be fixed once and for all on the issuance of the loan or may change throughout the life of the loan with reference to a market rate indicator.

Fixed rate saving bonds

The fixed rate provides a defined remuneration for the life of the loan. The interest rate is fixed for a conventional bond, it is annual and applies to the nominal value. For example, a bond issued at a price of 1000 euros, with a term of ten years and at a rate of 10%, offers its holder a fixed annual coupon of 100 euros. If the rates fall during the life of the bond, the holder will be satisfied to collect a return above the market average. However, if it is the opposite, it will be deprived of a fraction of yield that will be perceived by the person who bought a floating rate bond.

Floating rate of saving bonds

These bonds are issued at a rate. This rate varies according to a benchmark index. And it is known only a short time before the detachment of the coupon. The amount of your coupon will, therefore, vary according to the evolution of interest rates. This allows you to benefit from more substantial remuneration if the rates increase. On the other hand, if the rates go down you will benefit from less important remunerations than if you had opted for a fixed rate bond.

How to buy and sell saving bonds?

You can buy bonds when they are issued. This is called the primary market. Ask your financial institution to report outstanding loans. Securities are generally settled three weeks after the announcement of the loan. The issue contract must indicate: the issue price, the dividend date (start of the calculation of interest), the settlement date, the duration of the loan, the coupon (annual interest), the repayment terms. You can also buy older bonds in the secondary market where traded bonds traded. It is in this market that you will be able to resell your securities before the date of their repayment. To buy or sell bonds in the financial market, you must place a stock market order through a financial institution.