In finance, a bond can be a negotiable certificate that acknowledges the indebtedness from the bond issuer to the holder. It really is negotiable since the ownership with the certificate can be transferred from the secondary market. This is a debt security, where the authorized issuer owes the holders a debt and, depending on the the bond, is obliged to pay for interest (the coupon) to make use of and/as well as to repay the main at a later date, termed maturity. A bond can be a formal contract to settle borrowed money with interest at fixed intervals (semi annual, annual, sometimes monthly).

Thus a bond is like a loan or IOU: the holder in the bond is the lender (creditor), the issuer in the bond could be the borrower (debtor), as well as the coupon is the interest. Bonds give you the borrower with external funds to finance long-term investments, or, in the case of government bonds, to fund current expenditure. Certificates of deposit (CDs) or commercial paper are considered to be money market instruments and not bonds.

Bonds and stocks are securities, however the major difference between both is (capital) stockholders have an equity stake in the company (i.e., they are owners), whereas bondholders use a creditor stake from the company (i.e., they’re lenders). Another difference is that bonds usually have a definite term, or maturity, after which the call is redeemed, whereas stocks could be outstanding indefinitely.

In the UK, “bond” is additionally used to consult a time deposit using a bank or building society, which generally is just not marketable and it is be subject to different tax treatment in the bonds discussed here.