Bonds
In general terms, when you purchase a bond you are lending money. The borrower can be the United States government, a large corporation, or your state or local municipality. All of these organizations need cash. They acquire their cash by issuing bonds. When a bond is issued, individuals can purchase them at “face value.” You are promised that payment will be made back to you on the “maturity day.” When the predetermined date arrives, you are given your initial investment back, plus interest.
In essence, you are loaning an organization money and you are issued a bond. Bonds are commonly referred to as “fixed-income” investments, because you are assured of a payout. While there are risks involved, bonds are generally deemed a safer mode of investment over stocks.
The United States Government Bonds are called Treasuries. These are grouped into three different categories: U.S. Treasury Bills, U.S. Treasury Notes, and U.S. Treasury Bonds. Many investors agree that investing with Uncle Sam is probably one of the safer routes to take when looking at bonds. They are backed by the United States government, and barring an apocalyptic event--you will most certainly get paid. The differences between bills, notes and bonds are the maturity dates. Treasury bills mature between 90 days and one year. Treasury Notes mature from two to ten years, and Treasury Bonds reach maturity between ten and thirty years. Investors love Treasuries because they are exempt from state and local taxation.
Other bonds can include municipal bonds, corporate bonds, and zero coupon bonds. Municipal Bonds are bonds through your local or state government. Corporate bonds are investments made into a company. Zero-coupon bonds are sought after by many who are looking to pay for their children’s education or to fund retirement. Zero bonds are a little more confusing than other bonds, so you will want to make sure you are given advice by an expert.