Bond Basics

When a government, a government agency, or a corporation needs to borrow money, it can either go to a bank or issue a bond to attract capital from individual and institutional investors. When you buy a bond, you are loaning money to the issuer in exchange for the promise of regular interest payments and the repayment of your original investment, or principal, at maturity, or the end of a fixed term. Because the issuer owes you money, bonds are known as debt instruments. And because interest is typically paid at regular intervals in fixed amounts, they're also known as fixed income securities.

Although bonds are generally considered less risky than stocks, there are risks associated with them, just as with any investment. Before you invest, it is important to have a good understanding of how they put your money to work and how you can evaluate their risk and potential return.