What is a Gilt?

Put simply, a gilt is a Government promise – a UK Government bond. By purchasing a gilt, you are lending money to the Government, which they guarantee to pay back.

Gilts can be purchased as a private individual, but they are also a common investment strategy for pension funds and investment funds.

So what’s the attraction of a gilt?

You don’t hear about gilts that often, and yet they are traded every other day. Arguably, you are investing in the most highly rated credit worthy company in the country – the UK Government.

The key benefits:

  • Backed by the UK Government
  • Interest rate is more competitive that a deposit account
  • Interest rate is guaranteed for the period the gilt is held

Interest is paid every year based on the day you purchase the gilt.

At the time of purchase you will know what rate is payable, for example 4% per year.

So, if you purchased £1,000 gilt you would receive £40 per year in interest for the lifetime of the gilt. Typically, that interest is paid every six months. At the end of the term you would also receive your initial investment back – in the case of this example the original £1,000.

The length of term varies but you should see this as a medium to long term investment – anything from five to 30 years, although there has recently been a gilt released with a 55 year term!

You can sell the gilt on the open market, if you wish to release funds before maturity – the date the gilt is due to finish. The amount you will receive for the sale depends on the market conditions – so you could earn more than you paid in, but equally you could lose money. It’s vital that you understand that risk, before deciding to sell.

As part of an investment portfolio gilts can be an attractive option and balance out with some slightly higher risk investments.

As always, we encourage you to seek qualified independent financial advice before making any investment.

If you would like to learn more about gilts and if they are right for you, please contact us on 01344 875310.

what is a gilt