There are specific things you must be aware of about bonds before you start investing in them. Not understanding these things may cause you to buy the wrong bonds, at the wrong maturity date.

The three most important things that must be considered when purchasing a bond include the par value, the maturity date, and the coupon rate.

The par value of a bond refers to the amount of money you will obtain when the bond reaches its maturity date. In other words, you will obtain your initial investment back when the bond reaches maturity.

The maturity date is of course the date that the bond will reach its full value. On this time, you will get your initial investment, along with the interest that your money has earned.

Corporate and State and Local Government bonds can be ‘called’ before they achieve their maturity, at which time the corporation or issuing Government will return your initial investment, along with the interest that it has earned thus far. Federal bonds cannot be ‘called.’

The coupon rate is the interest that you will obtain when the bond reaches maturity. This figure is written as a percentage, and you must use other information to find out what the interest will be. A bond that has a par value of $2000, with a coupon rate of 5% would earn $100 per year until it reaches maturity.

Because bonds are not issued by banks, numerous people don’t realize how to go about buying one. There are two ways this can be done.

You can use a broker or brokerage firm to make the purchase for you or you can go at once to the Government. If you use a brokerage, you will more than probable be charged a commission fee. If you want to make use of a broker, shop around for the lowest commissions!

Buying directly through the Government isn’t nearly as hard as it once was. There is a program called Treasury Direct which will allow you to buy bonds and all of your bonds will be held in one account, that you will have simple access to. This will allow you to avoid using a broker or brokerage firm.

It must be also pointed out that investing in bonds is very protected, and the profits are commonly 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 factor about bonds is that you will get your initial investment back. This makes bonds the just right investment vehicle for those who are novel to investing, or for those who have a low risk tolerance.

As it was alredy patylu mentioned you can buy 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 basically 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 commonly have higher interest rates. This is for the reason that State and Local Governments can indeed go bankrupt – unlike the federal government.
State and Local Government bonds are released from profits 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 in fact very complicated, 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 purchase 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.

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