Bonds

A bond is an agreement on a loan between the issuer and the person buying the bond (bondholder). The bondholder has “lent” a certain amount of money to a government agency, municipality, or corporation and is given interest on the loan.

The term of a bond is given a fixed-rate at the time of issue and expires on the specified maturity date. At that time, the issuer is responsible to pay the bondholder the face value of the bond. Throughout the term of the loan, the issuer also pays interest to the bondholder. The interest amount is set when the bond is issued.

Bonds can vary in term length. The can be a short as one year or as long as 30 years. Usually, the longer the term on the bond, the better interest rate the bondholder receives.

If you choose to sell your bond before the term is up, you can, but you lose money. It’s always best to keep bonds for their full term.

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