Types of Bonds

Investing in Bonds is safe, and the returns are usually very good. There are four main types of Bonds available and are sold by the Government, through corporations, state and local government, and foreign governments.

The greatest thing about Bonds is you get back your initial investment. Bonds makes it the perfect investment vehicle for new investment in, or for people with 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 the Treasury Notes (T-Notes), Treasury securities (T-paper), and Treasury Bonds. All Treasury Bonds are backed by the Government of the United States, and tax is charged only in the interest of the Bonds earn.

Corporate Bonds are sold through public securities markets. A corporate bond is essentially a company that sells its debt. Corporate Bonds typically have high rates of interest, but this is a bit dangerous. If the company goes belly-up, the bond is unimportant.

State and local governments also sell Bonds. Unlike Bonds issued by federal government, the Bonds usually have higher rates of interest. This is because the State and Local Governments can indeed go bankrupt - unlike the federal government.

State and Local Government Bonds are free from income tax - even the interest. State and local taxes may be waived. Tax-free Municipal Bonds are common State and Local Government Bonds.

Buying Foreign Bonds is really difficult, and it is often done as part of a mutual fund. It is often extremely dangerous to invest in foreign countries. A safe type of bond to buy one that is provided by the U.S. Government.

The interest may be a little lower, but again, there is little or no risk involved. For best results, when a bond reaches maturity, reinvest it in another bond.