$ $ $ CIVICS PERSONAL-FINANCE Bonds

What is a Bond?  A bond is a type of loan agreement between the issuer of the bond and the purchaser of the bond.  The issuer promises to repay the amount of money borrowed at a fixed rate of interest over a set amount of time.

 Unlike stocks, bonds do not represent ownership in a corporation.  However, bond owners receive priority over stockholders when it comes to repayment if the company that issues the bond goes out of business.

 Bonds are classified as a fixed income investment.  This means that the bond will generate a fixed amount of interest income.  Bonds are typically considered to be safer investments than stocks.

Why do Governments and Corporations Issue Bonds?  Governments and corporations issue bonds to raise money to help finance their operations.  Issuing bonds is less costly and restrictive than borrowing money from a traditional financial institution like a bank.

Why do People Invest in Bonds?  Bonds generate a regular source of income.  Depending on the type of bond, there are certain tax advantages.

Government Bonds  Governments at all levels (federal, state, and local) issue bonds.  We are going to talk about the most common types of government bonds and securities found in the United States.  Today we are going to talk about U.S. Savings Bonds.

U.S. Government Savings Bonds  These bonds will earn interest for up to 30 years.  If the savings bond is redeemed within five years of purchase, you’ll pay a penalty equal to the three most recent months of interest.  Savings bonds typically pay a higher rate of interest than savings accounts.  Savings bonds are not as “liquid” as savings accounts.

Savings Bonds Continued  There are two basic types of U.S. government savings bonds. These are: Series EE and I-Bonds

Savings Bonds Continued  Series EE bonds reach maturity (double in value) 20 years from issuance though they continue to earn interest for a total of 30 years.  Series I bonds have a variable yield based on inflation.

Savings Bonds Continued U.S. savings bonds are considered one of the safest investments because they are backed by the full faith and credit of the U.S. government. U.S. savings bonds are considered one of the safest investments because they are backed by the full faith and credit of the U.S. government.

Corporate Bonds  This is a bond that has been issued by a corporation.  Corporations issue bonds to help expand their businesses.  Corporate bonds are considered to be higher risk than government bonds and typically pay higher rates of interest.