Bonds are a type of fixed-income investment that pay regular interest and return the principal amount at maturity. Bonds can provide a steady source of income and diversify your portfolio. But how can you buy bonds online?
In this article, we will explain the basics of bonds, the types of bonds available, and the steps to buy bonds online.
What are bonds?
Bonds are debt securities issued by governments, corporations, or other entities to raise funds. When you buy a bond, you are lending money to the issuer for a certain period of time. In return, the issuer promises to pay you interest at a fixed rate and frequency, and repay the principal amount when the bond matures.
The interest rate, also known as the coupon rate, is determined by the issuer’s creditworthiness, the bond’s maturity date, and the market conditions. The maturity date is the date when the bond expires and the issuer repays the principal. The principal amount is also known as the face value or par value of the bond.
What are the types of bonds?
There are many types of bonds available in the market, each with different characteristics and risks. Some of the common types of bonds are:
Treasury bonds: These are bonds issued by the U.S. government to finance its budget deficits. They are considered to be very safe and have low interest rates. They have maturities ranging from 10 to 30 years.
Municipal bonds: These are bonds issued by state and local governments or agencies to fund public projects such as roads, schools, or hospitals. They are generally exempt from federal income taxes and sometimes from state and local taxes as well. They have maturities ranging from 1 to 40 years.
Corporate bonds: These are bonds issued by companies to raise capital for business expansion, acquisitions, or debt refinancing. They have higher interest rates than government bonds but also higher risks of default. They have maturities ranging from 1 to 30 years.
Agency bonds: These are bonds issued by government-sponsored enterprises (GSEs) such as Fannie Mae or Freddie Mac to support the housing market. They have lower interest rates than corporate bonds but higher risks than treasury bonds. They have maturities ranging from 1 to 30 years.
Junk bonds: These are bonds issued by companies with low credit ratings or in financial distress. They have very high interest rates but also very high risks of default. They have maturities ranging from 1 to 10 years.
How to buy bonds online?
To buy bonds online, you need to have an account with an online broker that offers bond trading. Some of the popular online brokers that offer bond trading are:
Once you have an account with an online broker, you can follow these steps to buy bonds online:
Research and compare different types of bonds and their features, such as interest rate, maturity date, credit rating, tax status, etc.
Select the bond that suits your investment goals and risk tolerance.
Place an order with your online broker by specifying the amount of money you want to invest, the bond’s ticker symbol or CUSIP number, and the price you are willing to pay.
Wait for your order to be executed by your online broker. You will receive a confirmation email once your order is filled.
Monitor your bond’s performance and receive periodic interest payments until maturity.