Fixed-Interest Security

DEFINITION of 'Fixed-Interest Security'

A debt instrument such as a bond, debenture or gilt-edged bond that investors use to loan money to a company in exchange for interest payments. A fixed-interest security pays a specified rate of interest that does not change over the life of the instrument. The face value is returned when the security matures.

BREAKING DOWN 'Fixed-Interest Security'

Fixed-interest securities are less risky than equities, since in the event that a company is liquidated, bondholders are repaid before shareholders. However, bondholders are considered unsecured creditors and may not get any or all of their principal back.

Fixed-interest securities are also subject to interest-rate risk. Since their interest rate is fixed, these securities will become less valuable as rates go up in a rising-interest-rate environment. If interest rates fall, however, the fixed-interest security becomes more valuable.

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