Fixed Income Investments UK: What Are the Options?

Fixed income has a reputation for being dull, and for a long stretch of the 2010s that reputation was fair. With base rates pinned near zero, a government bond or a savings account barely kept pace with inflation, let alone provided a meaningful income. That has changed. Yields across the spectrum, from gilts to corporate bonds to the private credit and property-secured lending markets that sit outside the mainstream, are meaningfully higher than they were a decade ago, and more UK investors are looking at the full range of options rather than defaulting to whatever their bank offers.

This guide sets out where the main fixed income options sit on the risk and yield spectrum, from the safest end of the market through to the alternative and private lending products that certified investors can access, and explains why the alternative end typically pays more.

What "fixed income" actually means

At its simplest, a fixed income investment is a loan. You hand over capital for an agreed period, and in exchange you receive a set rate of interest, sometimes called a coupon, plus, usually, your capital back at the end of the term. This is different from buying shares in a company, where your return depends on the business growing and there is no promise of your money back at all. The trade-off is that fixed income returns are generally lower than equity returns over the long run, in exchange for more predictability, at least at the safer end of the spectrum.

Not every fixed income product is equally "fixed" or equally safe, though. The rate on offer, the security behind it, and how easily you can get your money back before maturity vary enormously depending on who is borrowing and what, if anything, stands behind the promise to repay.

The mainstream end: gilts, savings bonds and investment-grade corporate debt

Government gilts

UK government bonds, known as gilts, are the benchmark against which everything else in fixed income is priced. You're lending to the UK government, and the yield reflects both the Bank of England's base rate and the market's view of UK inflation and fiscal risk. Gilt yields have risen sharply from their post-2008 lows and now sit in a range that makes them a genuine income option again rather than an afterthought. Gilts can be bought directly through a broker, via gilt funds, or via National Savings and Investments (NS&I) products, which carry a Treasury guarantee rather than the standard deposit protection limit. They're highly liquid and about as low-risk as a sterling investment gets, which is exactly why the yield is the lowest on this list.

Bank and building society fixed-rate savings

Fixed-rate savings bonds and cash ISAs from banks and building societies aren't technically "fixed income" in the tradeable sense, but they do the same job for most savers: a known rate for a known term. Provided the institution is UK-regulated, deposits are protected by the Financial Services Compensation Scheme (FSCS) up to the standard limit. Rates move with the base rate and competition between providers, and at the time of writing the best one and five-year fixed bonds sit in a similar region to gilt yields, with easy-access accounts from some challenger banks matching or beating them.

Investment-grade corporate bonds

Move up the risk curve slightly and you reach bonds issued by large, financially strong companies. These pay a premium over gilts, known as the credit spread, to compensate for the fact that a company can default in a way a government cannot under normal circumstances. Investment-grade corporate bond yields currently sit a percentage point or two above equivalent gilts, and sub-investment-grade, or "high yield", corporate debt pays more again, reflecting a meaningfully higher chance of missed payments or default.

Where alternative and private fixed income fits

Once you move past listed government and corporate debt, you enter the world of alternative fixed income: private credit funds, direct lending to small and medium-sized businesses, and asset-backed loan notes issued by property developers and specialist lenders. These sit further along the risk spectrum than a gilt or a savings bond, and the yield on offer reflects that.

Private credit and direct lending funds channel investor capital into loans made directly to companies, often businesses too small or too specialist to issue a public bond or attract mainstream bank lending. Because these funds are lending into a market with less competition and more complexity, the interest they charge borrowers, and pass on to investors after fees, tends to be noticeably higher than investment-grade yields. Gross lending yields in this market often run into double digits, though what actually reaches the investor after management fees and performance charges is lower.

These figures move with the wider interest rate cycle, so treat them as a guide to relative positioning rather than a quote you can rely on for any specific product. The point isn't the exact number, it's that each step away from a government guarantee towards a private, less liquid arrangement generally comes with a higher headline rate, because the investor is taking on more of the things a government or a large listed company would otherwise absorb: credit risk, illiquidity, and the absence of a deep secondary market to sell into if plans change.

"A higher rate is not a reward for nothing. It is compensation for a specific risk, and the job of the investor is to work out whether that compensation is enough."

Peer-to-peer lending: a shrinking part of the picture

Peer-to-peer lending was, for a while, presented as the accessible face of alternative fixed income, letting retail investors lend directly to individuals or small businesses through an online platform. The sector has contracted substantially since its mid-2010s peak. Tighter FCA rules introduced from 2019 onwards required platforms to run appropriateness tests on retail customers and hold larger capital buffers, and from April 2024 platforms have had to maintain a minimum safeguarding buffer on top of ring-fenced client money. Several well-known platforms have wound down retail lending altogether or converted into different types of fund. What remains is a much smaller, more concentrated market, with most surviving retail platforms now lending against property security rather than unsecured consumer or business loans. Anyone considering peer-to-peer lending today is really looking at a specific, secured-lending niche rather than the broad market that existed a decade ago.

Property-secured bonds: a distinct sub-category

Property bonds and secured loan notes, where an investor's capital is lent against a specific development or portfolio and secured by a legal charge over the underlying property, are one of the more established corners of the alternative fixed income market. They typically offer some of the highest headline rates in this guide, because they combine illiquidity, reliance on a single borrower or project, and, in many cases, no FSCS protection at all.

This is a large enough topic to deserve its own treatment rather than a summary here. For a full explanation of how these products work, how the security actually functions, and what tends to go wrong, see our property bonds hub and the dedicated guide to what property bonds are. You can also browse live property-secured opportunities via our property bonds page.

Why the alternative end pays more

Three things typically explain the gap between a gilt yield and a private credit or property bond rate. First, credit risk: a single company or development has a real, non-trivial chance of running into trouble, unlike a government issuing its own currency. Second, illiquidity: there is usually no ready market to sell into before the term ends, so investors need compensating for being locked in. Third, the absence of a safety net: deposits are FSCS-protected, most alternative fixed income is not, so if something goes wrong, capital is genuinely at risk rather than backstopped.

None of this makes alternative fixed income a bad idea. It means the higher number needs to be weighed against what is actually standing behind it, which is the subject of our guide to comparing fixed income investments. It's also worth understanding the eligibility rules first, since many of these products are restricted to self-certified sophisticated investors or high net worth investors, and reading our broader overview of alternative investment options in the UK for how fixed income fits alongside property, private equity and other asset classes.

Building a view across the spectrum

Most investors don't need to pick one point on this spectrum and stay there. A reasonable approach is to hold safer, liquid fixed income, whether that's gilts, savings, or investment-grade bonds, for money that needs to stay accessible or simply cannot be put at risk, and to treat the higher-yielding, illiquid end as a smaller allocation that reflects a genuine, informed acceptance of the extra risk involved. Understanding how safe alternative investments really are is a useful starting point before allocating any capital to this end of the market.

To see current alternative fixed income opportunities matched to your investor status and objectives, try our comparison tool.

This article is general information only and does not constitute financial advice. If you are unsure whether any fixed income investment is right for your circumstances, seek independent advice from an FCA-authorised financial adviser.