The Four Types of Bonds
There are four basic types of bonds available in the U.S Market. These are the Treasury Bonds, State and Local Government Bonds, Corporate Bonds, and Foreign Bonds. Knowing their differences will help you determine which bond is best for you to buy.
Treasury Bonds are issued by the Federal Government through the Treasury Department. Because they are backed by the federal government itself, and because tax is charged only on the interest, Treasury Bonds are the safest but their interest is a bit lower. Thus, this type of bond is good for the novice investor.
Local and State Government Bonds on the other hand have higher interests rates. But the risk is also higher because Local and State Governments can go bankrupt. Still, the return is good, and tax free.
Corporate Bonds are literally private companies selling their debts. They have higher interests rates compared to government bonds, but even higher risks, the bond will be worthless if the company goes bankrupt.
Foreign Bonds have varied interest according to the country of origin, and these are often in mutual funds for these bonds are hard to come by. Still, some people may find it more stable and predictable compared to domestic types.
Depending on which bond you choose to purchase, you will get varied outcomes. And like the saying, the higher the risk, the higher the gain. Nevertheless, investing in bonds are still safer compared to other types of investment, and you will get your initial investment back quicker.