Different Types of Bonds by Ravinder Tulsiani

Different Types of Bonds by Ravinder Tulsiani

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.


About the Author: Ravinder Tulsiani is a published author who has
written about personal finance, real estate, self-help and online
marketing. For details visit: www.ravinder.ca