WITH reports of economic crisis, the plummeting value of the pound and historic action from the Bank of England (BoE), there is a lot of economic jargon being thrown around.

One of those terms that you will be reading a lot about is a Gilt or “gilt edged security”.

Here is everything you need to know about Gilts.

What are Gilts?

Gilts are government bonds that are, essentially, low-interest loans. The Government uses Gilts to raise money in times when there is a shortfall between revenue from taxes and public spending.

These securities are referred to as “gilt-edged” because they are considered safer to invest in than individual companies.

Every six months you will be guaranteed a fixed cash payment, referred to as a coupon, until the maturity date at which point you receive your final coupon payment on top of the original sum that you invested.

READ MORE: Why is the Bank of England intervening and what is it doing?

Simply put, you lend the Government money, they give you a Gilt (similar to an IOU), and you can wait for your Gilt to mature over many years or sell it in the same way you can with stocks and shares.

The main reason these securities are considered so safe is that the UK Government has never failed to make interest or principal payments on Gilts.

The previous explanation refers to conventional Gilts, which are the most popular and make up around 75% of the Gilt portfolio, but there are other types.

What are index-linked Gilts?

Index-linked Gilts take interest into account and so the sum of capital invested is scaled accordingly. These are slightly more complicated.

Index-linked Gilts differ from the conventional type as the coupon and principal payments made by the Government are adjusted in line with the UK Retail Prices Index (RPI).

This means that both the principal and coupon payments are adjusted to take into account the rate of inflation from the time the Gilt was first made.

What are strippable Gilts?

Strippable gilts are where the individual coupon and principal payments can be bought and sold separately.

For example, a two-year Gilt will make five separate cash payments to the holder – The four bi-annual coupon payments and the final principal payment. These five separate payments can be bought or sold separately, in which case they are referred to as zero-coupon Gilts.

How do I access Gilt markets?

There are two main ways to buy a Gilt.

The first is through the Government’s Debt Management Office.

The second is via the market, either through a stockbroker or the BoE’s brokerage service – which can be accessed through any main Post Office branch.

However, the Bank of England has now suspended its service of selling Gilts.

Why are people talking about Gilts now?

Gilts are in the news because the current economic crisis is so dire that the BoE has made the historic decision to intervene in the Gilt market.

The BoE has suspended its programme of selling Gilts and is pivoting to buying long-dated bonds.

In making the move, the central bank cited a “material risk to UK financial stability” which follows Chancellor Kwasi Kwarteng’s mini-budget that cut taxes for the rich and lifted the cap on bankers’ bonuses.