Best Bond Brokers/Trading Platforms Compared & Reviewed

A bond broker is an investment platform or stock brokerage firm that offers access to bonds. Bonds can play an important role in a diversified portfolio.

Investing in bonds as a retail investor can be challenging without a bond broker. Unlike stocks, bonds aren’t traded on a centralised exchange. Instead, they are traded over the counter (OTC). Most bond brokers offer access to a wide range of bonds and fixed income securities, including government bonds, corporate bonds, and high-yield bonds.

Bond work like a loan where the issuer only pays back the interest until the end of the loan when the full balance is due.

The bond market is growing rapidly. What was once the preserve of institutional investors dealing with high numbers is opening up to more and more people dealing with much smaller volumes. SIPPS and ISAs are driving demand while online investment platforms are making pricing more transparent and allowing people to execute smaller deal sizes. More and more private investors are getting involved, so we’ve put together this guide to give you all the basics about the bond market, the opportunities, risks and why you should get involved.

If you wish to invest in bonds, you need to open an account with a bond broker. This is usually a straightforward process that can be done online.

To open an account with a bond broker, you will need to provide the broker with personal details such as your name, address, and National Insurance number. You will most likely have to provide identification such as a passport or driver’s licence, as well as proof of your address.

Once the account is set up, you will be able to fund your account. This can usually be done via card payment or bank transfer.

Once the account is funded, you will be able to start investing in bonds.

• Bond brokers make money in several ways, including:

  • Trading fees. Most brokers charge commissions to buy bonds.
  • Price mark-ups. Many brokers keep inventories of bonds they have previously purchased through public offerings or on the open market. Because they own the bonds, they can mark up the prices when they are sold to investors.
  • Trading spreads. Spreads are the difference between the price to buy the bond and the price to sell the bond.
  • Annual account fees.

It’s sometimes possible to buy bonds without a broker. For example, in the UK, you can buy UK Gilts from the UK Debt Management Office.

There are several advantages of using a bond broker, however. The main advantage is that you will have more investment options.

Through bond brokers, you can generally buy a wide range of bonds, including:

• Government bonds
• Corporate bonds
• High-yield bonds

However, the offering will depend on the individual broker.

Yes, you can invest in bonds through an ISA.

However, to comply with HMRC rules, bonds held within an ISA must be listed on a recognised publicly traded stock exchange, or the bonds must be issued by a company that is itself listed.

Yes, but it must adhere to certain requirements such as being listed on a recognised stock exchange and having a maturity of more than five years.

Most providers will allow you to include bonds as part of a SIPP.

Further reading: Compare the best SIPP accounts.

Bonds are generally seen as lower-risk investments. However, different types of bonds have different levels of risk.

For example, government bonds are considered to be lower risk than corporate bonds as the probability of a government defaulting on interest payments is much lower than the probability of a corporation defaulting on interest payments. High-yield bonds are generally considered to be higher-risk investments.

It’s important to understand that bond prices can rise and fall, and as an investor, you take on the risk that the value of your bonds could fall.

Yes, you can. The easiest way to do this is to open an account with a bond broker, deposit funds into your account, and buy the bonds.

It is possible to buy UK government bonds directly from the Bank of England without using the services of a bond broker.

However, the process is not that straightforward and you will need to register and be approved before you can do so.

You can buy bonds through a bond broker or online share dealing platform which make it easier and less expensive for individual investors to trade bonds. Specialised brokers tend to require a high initial deposit which might put it out of range for many people. Online brokerages are less expensive or you can try investing in bonds through mutual funds or exchange traded funds (ETFs) which invest in bonds. These operate in much the same way as stocks and shares.

If you’re buying on the open market you should remember you are buying bonds from other investors rather than from the issuers themselves. Broker fees can be easy to misunderstand. Even if a broker says they are commission-free they may quietly mark up the price. Most banks or brokers should allow you to buy government bonds direct, but if they don’t you can go directly through a Government agency.

Yes, investment bonds can usually be sold quite easily through bond brokers, although some bonds are less liquid than others. It’s important to be aware that if you sell a bond before its maturity date, you may get back less than you paid for it. That’s because bond prices can fall at times. A bond’s price can fall if interest rates rise or the issuer’s credit rating is downgraded.

As investors hunt for relatively low-risk returns in times of low interest rates, there  are more and more bond scams than ever before.  Generally, they are fake websites site up advertising double diget returns on well known brand names.

Further reading: Bond Scams: The rise of fixed income scams and how to avoid them

Yes, but many brokerages require high initial deposits. Online brokers are more accessible.

Bonds should form part of a diverse portfolio, so it’s not recommended to invest all your money in bonds. It’s easier than it used to be to invest on a smaller scale, but income may get swallowed up by dealing costs. To be viable, you may need to invest more than £1,000. Some bonds have minimum buy amounts.

Most issuers will display their credit ratings. Alternatively, you should be able to look them up on the websites of ratings agencies. Check out moodys.com/ and www.standardandpoors.com

Normally equities do better in the long term. However, at times of market volatility bonds can outperform equities. They also provide a more reliable income stream.

You will receive a pro-rate payment based on accrued interest.

If you hold it in an ISA or SIPP it may be part of your tax-free income. Gilts incur no capital gains tax and neither do most qualifying corporate bonds. Other bond income will have to be included on your tax return. 

You can buy bonds through a stockbroking account, or compare retail bond brokers here. They can also be kept in your SIPP account or stocks and shares ISA.

Yes, you can lose money on bonds. Although bonds are often seen as low-risk investments, it’s still possible to lose money on them.

One risk you face as a bond investor is that the issuer of the bond may not be able to repay some or all of its obligation. With government bonds, the risk of default is generally quite low; however, with corporate bonds, the risk is something to consider.

Another risk is that bond prices are constantly fluctuating and prices can move against you. If you need to sell a bond before its maturity and its price has fallen, you can lose money.

Finally, inflation is also worth considering. If you’re earning 2% from a bond and inflation is running at 2.5%, you’re losing money in real terms.

The easiest way to manage risk when investing in bonds is to own a diversified portfolio of securities.

Bond prices have an inverse relationship with interest rates. This means that when interest rates go up, bond prices go down, and when interest rates go down, bond prices go up.

The reason for this is quite simple. If interest rates are falling, older bonds that offer higher interest rates become more valuable, so their prices rise. Similarly, if interest rates are rising, older bonds that offer lower interest rates become less valuable, so their prices fall.

Given this relationship, the best time to buy bonds is when interest rates are falling. In a falling rate environment, bond prices tend to rise, generating extra gains for investors.

Yes, you can apply to take part in new bond issues along with institutions through PrimaryBid or stock brokers like Hargreaves Lansdown, AJ Bell or Interactive Investor.

As with all new issues you will have to submit an application and will only know what your allocation is when the bond comes to market. As many bon new issues come to market at a premium they are often oversubscribed and private investors scaled back.