Bonds are a form of debt. You loan your money to a company, a city, a state, or a government agency and they promise to pay you back in full, with regular interest payments 1 . An investor can invest in bonds in two different ways: purchase shares in bond funds or purchase individual bonds. When an investor purchases a bond, he/she becomes a creditor of the issuer. The buyer does not gain any type of ownership rights to the issuer. However, a bondholder has a greater claim on an issuer's income than a shareholder in case of financial distress. Bonds vary widely in maturity, security, and type of issuer. 

Corporate Bond: A bond issued by a corporation. The backing for the bond is usually the payment ability of the company. Corporate bonds are considered higher risk than government bonds. As a result, interest rates are often higher than government bonds. Interest earned on corporate bonds is taxable.

Municipal Bond: A debt issued by a city, county, state, or other political entity. Interest paid by most municipal bonds is exempt from federal income taxes and often from state and local taxes as well. Income from Municipal bonds may be subject to federal alternative minimum tax.

Some of the advantages of Bonds include:

  • Steady Income: Bonds provide a fixed income stream and typically pays fixed interest semiannually at its coupon rate. 
  • Liquidity: Bonds trade in an over-the-counter market with inconsistent liquidity based on current market conditions. Once you own a bond, the only way to cash out before maturity is for your broker to solicit bids. The price you receive is whatever the buyer offers, less the broker’s bid/ask spread or commission. 

For more information on how to invest in Bonds, please call or visit your local branch to speak to one of our Financial Consultants . Our experienced Financial Consultants will help you determine which investment options are most appropriate for you.

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