 |
| Different Types of Bonds
Wordbnd.com - 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.
|
