Home >> Investment
Basics >> Different Types of Bonds
Investing in bonds is very safe, and the returns are usually very
good. There are four basic types of bonds available and they are
sold through the Government, through corporations, state and local
governments, and foreign governments.
The greatest thing about bonds is that you will get your initial
investment back. This makes bonds the perfect investment vehicle
for those who are new to investing, or for those who have a low
risk tolerance.
The United States Government sells Treasury Bonds through the
Treasury Department. You can purchase Treasury Bonds with maturity
dates ranging from three months to thirty years.
Treasury bonds include Treasury Notes (T-Notes), Treasury Bills
(T-Bills), and Treasury Bonds. All Treasury bonds are backed by
the United States Government, and tax is only charged on the interest
that the bonds earn.
Corporate bonds are sold through public securities markets. A
corporate bond is essentially a company selling its debt. Corporate
bonds usually have high interest rates, but they are a bit risky.
If the company goes belly-up, the bond is worthless.
State and local Governments also sell bonds. Unlike bonds issued
by the federal government, these bonds usually have higher interest
rates. This is because State and Local Governments can indeed
go bankrupt unlike the federal government.
State and Local Government bonds are free from income taxes even
on the interest. State and local taxes may also be waived. Tax-free
Municipal Bonds are common State and Local Government Bonds.
Purchasing foreign bonds is actually very difficult, and is often
done as part of a mutual fund. It is often very risky to invest
in foreign countries. The safest type of bond to buy is one that
is issued by the US Government.
The interest may be a bit lower, but again, there is little or
no risk involved. For best results, when a bond reaches maturity,
reinvest it into another bond.
|
