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How Do Bonds Work?

With so many options for financial investing, it can be difficult to keep track of the choices available and the pros and cons of each. When compared to stocks, bonds are a popular choice due to their perceived lower risk and anticipated payments.

Here’s what you should know about how bonds work.

bond

What Is a Bond?

A bond is a debt investment in which an investor loans money to an entity for a fixed period of time. When a business or government needs a loan bigger than a bank provides, they issue bonds for purchase to raise funds. Unlike stocks, you don’t have any ownership rights with bonds. 

Bonds may be a good addition to your financial mix because of the following:

How Do Bonds Work?

When you buy a bond, the issuer promises to pay the face value of the bond when it becomes due, or when it reaches maturity. The common face value of a bond is $1,000. 

The issuer also pays a specified interest rate throughout the lifetime of the loan. The interest amount and payment frequency depends on the bond, but the interest rate is typically higher with long-term bonds. Bonds often have a fixed interest rate, but some bonds have interest rates that change with market conditions.

Bonds may be issued by a business, a government or a municipality. Below are the most common types of bonds that investors buy.

Corporate Bonds

Corporate bonds are issued by both private and public companies. Types of corporate bonds include:

how do bonds work

Municipal Bonds

Municipal bonds are issued by government entities, such as states, cities and counties.

Treasury Bonds

Government bonds can also be issued by the U.S. Department of the Treasury. Treasury bonds, or T-bonds, are popular because they’re backed by the creditworthiness of the federal government and are considered a safer investment. 

What Should I Consider When Buying a Bond?

plan for your future

Keep the following in mind as you consider options for buying bonds:

Synchrony Bank does not provide financial advice, so be sure to consult with your tax advisor or financial consultant before making any investment. 

Strengthen Your Investment Plan at Synchrony Bank

Saving is the first step to financial success. At Synchrony Bank, while we don’t offer bonds or stocks, we do offer a variety of deposit products and banking representatives that can help you open a new savings account.

If you want to expand your savings portfolio, call Synchrony Bank at 844-345-5789 or find us online today and see how you can improve your savings strategy. 

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Sources: 

Investopedia: https://www.investopedia.com/ask/answers/013015/how-does-face-value-differ-price-bond.asp

Investopedia: https://www.investopedia.com/terms/b/bond.asp

Investopedia: https://www.investopedia.com/terms/c/consumerpriceindex.asp 

U.S. Securities and Exchange Commission: https://www.investor.gov/introduction-investing/basics/investment-products/bonds

Time: http://time.com/money/collection-post/2792026/stocks-bonds-mix/ 

TreasuryDirect: https://www.treasurydirect.gov/tdhome.htm


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