Examining the Types of Bonds

Are you ready to jump from simply saving to investing? One way you can invest is through bonds. They are basically money the issuer owes you which earns interest over time. They can also generate high returns and can give you back your investment plus interest upon maturity. So, if you are pretty new in the investment arena, it is good to start with bonds. You should, however, be aware that there are different types of bonds.

Treasury bonds

These bonds are issued by the federal government. They are no longer offered by the US treasury but can be bought at a secondary market. These bonds are not as risky. On the other hand, it can take ten years for them to mature. These bonds also generate lower returns than other bonds.

State or local government bonds

As the name suggests, local government bonds are issued by the local government. They are riskier than treasury bonds because local governments can actually go bankrupt. On the positive side, local government bonds can earn you higher returns than treasury bonds.

Corporate bonds

Private businesses can also issue bonds. If you are getting a little bit more adventurous, you can buy corporate bonds for your investment. These are riskier but they also operate with a higher interest that can increase your investments significantly.

Foreign bonds

For foreign bonds, interest rates can depend on the country. Some of these bonds can actually be safer than some domestic bonds. However, they are also much rarer than their domestic counterparts.

Now that you are familiar with the four types of bonds, you can decide whether to take a risk right away or to test the waters first with low-risk bonds.