InvestmentGradeBonds.net

Bonds are thought of as being one of the least risky of all investments, and to an extent that is true. Most bonds investments will be returned as promised, although some issuers may not be able to pay back those bonds upon maturity.

Let’s consider the difference between investing in bonds versus investing in Certificates of Deposit. When you invest in a CD, your principal is guaranteed up to $100,000 per account by the Federal Deposit Insurance Corporation, or FDIC.

So when you invest in a CD, it doesn’t really matter which issuer you choose, the first $100,000 of your money in each account is safe. You are free to choose the issuer that gives you the highest interest rate for your deposit.

When you invest in bonds, the choice isn’t so cut and dry. When you invest in bonds, your investment is covered only by the issuer themselves. If the issuer goes out of business or goes bankrupt, the safety of your investment is in jeopardy.

U.S. Treasury Bonds are guaranteed by the United States government and pay a relatively low interest rate. Because they are guaranteed by the government, they are considered an extremely low-risk investment. Bonds that are issued by corporations typically pay a higher interest rate, because the public sees them as a higher risk than the government.

The higher risk the investment, the higher the interest rate will typically be. Bonds that are issued by companies that are considered very high risk are called high-yield bonds or junk bonds. Junk bonds carry a high risk, but their interest rates still make them an attractive investment for people who are willing to accept that level of risk.

Bonds that are issued by governments and by companies with a great reputation and solid financial history are called investment-grade bonds. They are low risk, but also pay lower interest rates. Bonds can definitely carry some risk, especially junk bonds.

So if you’re considering investing in bonds, you should weigh risk versus reward carefully. Choose an issuer that offers you the greatest reward for the level of risk you are willing to accept.