Gilts - Treasury bonds

Gilts is the name given to Treasury bonds. The name alludes to a gold-edged investment on account of it's relatively low risk. Most annuities are compelled to invest in gilts, as they provide such a reliable return.

A gilt is effectively a loan to a government. As the UK hasn't defaulted on it's debts (all be it, they had to get a loan from the International Monetary Fund in the 70s), so it is a good investment. The price of a gilt generally goes up if interest rates are low and goes down if they're high.

A gilt is usually advertised as '£value nominal of interest Treasury Stock maturity date',

where value is the nominal value of sold debt, interest is the percentage interest you could expect per year if you paid the nominal value and maturity date is the date on which the government will pay back the nominal value. For example '£1000 nominal of 3pc Treasury Stock 2012' would pay back £1000 on 1 January 2012 and will pay £30 per year from when you buy that debt until the maturity date. The nominal value isn't necessarily the amount you pay. You may pay more or less. The yield is the interest returned per year divided by the amount you paid (rather than the nominal value). For example, if you paid £900 for £1000 nominal of 3pc Treasury Stock 2012, the interest rate would be 3% but the yield would be 30/900=3.3%.

You can buy gilts from the government's debt management office.

Alternatively, you can buy gilts via a stockbroker or at the post office.