are a form of borrowing from investors in exchange for an agreement
to repay them with interest at a set date in the future. There are
many benefits to investing
in bonds. First, bonds are a relatively safe
investment; unless a company goes bankrupt, it is almost certain
that you will receive back the amount you originally invested. Second,
bonds pay interest
at set intervals of time, which can provide money to live on or
to invest somewhere else. And third, bonds can provide a tax
advantage for some people because the interest that is earned
may be tax exempt.
are four basic kinds of bonds:
The Federal Government. These are sold by the Treasury
Department and include Treasury notes, Treasury bills, Treasury
bonds, and inflation-indexed notes. The length of time before they
mature ranges from 3 months to 30 years. They are guaranteed by
the U.S. government and the interest is tax exempt.
Other Government Agencies. Some government agencies
such as the Federal National Mortgage Association (Fannie Mae) sell
bonds backed by the credit of the U.S. for specific purposes, like
funding home ownership.
Corporate Bonds. Because they are not backed by
the government, Corporate bonds normally have a higher interest
rate. This is because there is always a risk that the company could
go bankrupt and default on the bond.
State and Local Governments (Munis). State and
local governments, like corporate bonds, have to offer more competitive
interest rates because they too can go bankrupt. The interest on
these bonds is free from federal income tax and state and local
governments can also waive income tax on these bonds.
Bond Investors Need to Know
Basics from Investopedia.com
Overview of the World of Bonds
is a Bond?
Vanguard Group: Investing in Bonds