A bond or debt security is like a loan where the issuer gets external funds to finance a company or governments expenses.
They are paid at fixed interest over a period of time.
There are various type of bonds which are sold by the corporations, federal government, state and local governments, and foreign governments.
Getting your initial investment back is one of the great things about bond investing.
This is considered to be a good investment for those who are just starting out in investing and those with risk tolerance that are low.
Bonds investing is considered safe with good returns.
The federal government sells treasury bonds that has maturity dates that range from three months and longer.
You can get them through the Treasury Department.
Treasury bonds are backed by the federal government and taxed based on the interest the bond earns.
They include treasury bills or T-Bills, treasury notes or T-Notes, and treasury bonds.
A government bond with higher interest rate than that offered by the federal government can be found through the local or state government.
They have a higher interest rate because local and state government can go bankrupt not like the federal government.
The common local and state government bond is called a tax-free municipal bond.
It is free from income tax including the interest.
State and local taxes can also be dropped.
A corporate bond is basically debt sold by a company.
You can get corporate bonds through public securities markets.
They usually have a higher interest rate but are also riskier because if the company goes bankrupt then the bond losses its value as well.
Foreign bonds are very difficult to get and often times part of a mutual fund.
There are also a lot of risk involved in investing in foreign bonds and other consider investing in bonds issued by the US government to be the safest.
You may not get a higher interest since there is almost no risk involved.
You can reinvest the bond to get good results as soon as the bond reaches maturity.