Subscribing to a fixed rate investment at more than 5% is currently possible for all budgets, by purchasing bonds directly on Trade Republic. What you need to know and how to proceed.
Trade Republic’s commercial offer is interesting. The broker is an intermediary for the stock markets that allows you to trade stocks, ETFs, derivatives and cryptoassets with one-off brokerage fee of 1 euro per transaction.
Accessible only from the smartphone app, it also allows you to set up “savings plans”. You can therefore progressively and automatically purchase 100 euros of fractional shares of BNP Paribas or LVMH each month, without brokerage fees in this context. The Trade Republic cash account is also remunerated, at 4% gross currently, with interest paid each month, up to 50,000 euros. An advantage that you can use without even investing a single euro in the stock market.
The downside of the account is that it is based in Germany. It will therefore be necessary to declare it for taxes as a foreign account. You will also need to declare your capital gains or losses yourself each year as well as the income received, for application of the PFU (which is not operated by Trade Republic). Please note, finally, that the broker only offers securities accounts and that it is therefore impossible to open a PEA there. (1).
Since last September, the neo-broker has added investment in a selection of more than 500 government and corporate bonds, quoted in euros. The particularity of this offer is to allow fractional investment, with no minimum amount, thus eliminating the liquidity risk for the client. Brokerage fees, as for other assets, are set at 1 euro per transaction. However, access to bonds is not possible through “savings plans”.
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What is a bond?
A bond is a financial instrument which represents part of a loan issued by a government or a company. By purchasing a bond, you lend money at an interest rate and over a period (or maturity) defined in advance. In return, you usually receive (2) an annual coupon (interest) and you will be reimbursed – unless the issuer defaults – of the face (or nominal) value at maturity (or maturity date).
Bonds are priced as a percentage of their face value. This quotation varies of course depending on supply and demand, but also and above all depending on the risk factor that the issuer represents for the markets.
Unlike shares whose price is impacted by the payment of a dividend, the price of a bond does not take into account accrued interest or coupon payments. This point is important because it has an impact: upon purchase, you will have to pay the accrued interest in addition to the price, and on the contrary, upon resale, you will be reimbursed for the accrued interest.
Investments: the not always intuitive behavior of bonds
Example
Illustration for a bond of 1,000 euros of face value, with a maturity of March 25, 2025 and an annual coupon of 5% every March 25. You buy it on February 1, 2024 at a price of 102%, then you sell it on October 25, 2024 at 103%.
- When purchasing, you will pay 1,062.88 eurosor 1.02 x 1,000 + 42.88 accrued interest over 313 days.
- On March 25, you will receive a coupon of 50 euros.
- And on October 25, the sale will bring you 1,059.32 euros, or 1.03 x 1,000 + 29.32 euros of interest accrued over 214 days.
In total, this round trip will have allowed you to earn 46.44 euros, or a gross remuneration of 4.37%, the equivalent of an annualized return of 6.26%.
Placing an order on Trade Republic
With these preliminaries said, here is now how to make a first purchase on your smartphone with the Trade Republic app.
First stage, the selection. Go through the Search button, then Bonds. You get a list of bonds in descending order of yield, which you can filter, by type (state or company), duration, sector of activity or geographic area.
2nd step. By choosing a bond, you access its value sheet. This gives you a graph of recent developments (graduated in yield), the remuneration conditions, the main characteristics (duration, percentage price, Isin code, etc.) as well as information on the product (date of maturity, frequency and interest rate of coupons as displayed below).
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Step 3. By tapping the Buy button, you can enter an amount (or choose one of the suggested amounts), then do Next. You will then obtain a summary sheet of your purchase. Then simply validate to confirm the purchase order.
Step 4. A few minutes later, you will receive confirmation of execution with transaction details.
Example for a transaction of 500 euros carried out on the “Vallourec 8% 2026” bond issued on January 29:
- Nominal amount: 481 euros at a price of 101.47%, or 488.07 euros,
- Amount of accrued interest of 11.92 euros,
- Fees: 1 euro,
- Total: 500.99 euros.
We see here, Trade Republic automatically calculated the nominal amount, to ensure that the accrued interest when added makes a total of 501 euros (rounding up).
Once the purchase is made, the value sheet on the app is enriched with:
- Your position: total amount, annual yield and remaining duration;
- The schedule of future coupons, and the accrued interest for the period since the purchase;
- The position at market value: market value, performance, gain and a reminder of the purchase price (here including fees and accrued interest);
The purchase order can also be placed with alternative methods:
- By requesting a precise face value. The validation screen then details the amount of accrued interest and the total amount of the transaction. This order is more transparent and should be preferred over the default order.
- By specifying a course limit and a face value (a minimum of 1,000 euros). Here again, before validating, you will have access to the details of the order with the nominal value, accrued interest and the total amount.
Our balance sheet
Undeniably, Trade Republic’s promise to “democratize investment in bonds” is kept, and at a reduced cost. The platform provides both a large amount of information and placing an order is simple and intuitive.
However, some points could be further improved. : The price evolution graph is only graduated as a percentage of the market return, and not as a percentage of the nominal. We would like to take advantage of the double information. It would also be useful to visualize, from the value sheet, the amount of interest accrued without having to initiate an order, the sensitivity of the bond price to a rate variation, or even the original nominal amount of the bond.
To compensate for these shortcomings, do not hesitate before your purchase to retrieve additional information from stock exchange sites, by copying and pasting the Isin code of the bond from its value sheet, in order to carry out the research.
Learn more about Trade Republic’s offering
(1) It is not possible to hold bonds on a PEA.
(2) Bonds can have very different characteristics: interest in fine, mixed interest (one part via coupons, the other part in fine), quarterly or half-yearly coupons, coupons at 0% (the remuneration is then only on the price difference), remuneration indexed to inflation…