Bonds are fixed-income investments that allow individuals to lend a specific amount of money to a large entity, like a government or corporation, for a set amount of time in return for interest that pays out over the life of the loan. Their main function is to help these large entities finance projects and business ventures.
While they’re seen as predictable investments, the returns are often less lucrative than other investment options, like stocks.
There are three main types of institutions that issue new bonds: government, corporate, and municipal. Each sells its own types of bonds, which have their own functions, rules, and rates.
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In the early 1800s, bonds were used to fund US railroads and canals in Great Britain. “Liberty Bonds” were sold during both World Wars in the 20th century. Learning about the early and modern history of bonds can offer a glimpse into how the modern bond market came to be.
While more people invest in stocks than bonds, experts say owning both can make for a healthier portfolio. Stocks are considered a riskier investment than bonds, but tend to have higher returns. While bonds might be the safer option, they won’t grow your wealth as quickly.
To help fund its WWI military activity, the US introduced Liberty Bonds—government-issued debt marketed directly to the public. Starting at $50, the campaign targeted working Americans and offered Thrift Stamps to make bond-buying more accessible. Hollywood led the charge, with stars like Charlie Chaplin and Mary Pickford boosting bond sales.
Each type has variations of its bond offerings with different interest rates, loan lengths, maturity dates, and terms. Each type also carries its own risks and rewards.
EE bonds have fixed interest rates that the buyer is informed of when they purchase the bond. I bonds, however, earn a rate that can change every six months. A comparative chart details the most significant differences between EE bonds and I bonds.
Bond yields are considered a major indicator of how the US and global economies are doing, and where they’re headed. When bond yields increase, this tends to mean the cost to borrow money is also increasing.
Think: changes in interest rates that impact the bond’s value, or a bond issuer completely defaulting on a loan. There are steps investors can take to lower their initial and future risk when investing in the bond market, such as checking a company's bond rating before investing.
Invest in the boind market through a brokerage, mutual fund or ETF, or the US government. Each has different steps and terms to follow, from starting rates to opening specific accounts. Some bonds are relatively easy to purchase, but the process differs depending on the type of bond you want.
Treasurys are some of the most common bonds for investor—and the majority of the national debt is in bonds.
An IRS tax refund is the only way to buy a paper savings bond, but if you have an old paper savings bond you can determine its current value with this calculator. The calculator only works for paper savings bonds of Series EE, Series I, Series E, and savings notes.
The United States is home to more than 33 million businesses, the vast majority of which are small businesses, with millions being created (and others closing shop) every year. These businesses often rely on loans, provide the goods and services that keep the economy flowing, and sometimes even grow large enough to enter public markets or provide private investment opportunities. Explore key topics central to business and finance, from the role of the Federal Reserve to how initial public offerings work, how millions of American students finance higher education, and more.