Bonds are normally issued by governments, corporations, municipalities, supranational agencies such as the European Investment Bank or the Asian Development Bank and credit institutions. All these entities require money to operate. They borrow money from the public by issuing bonds. The agency or company issuing bond promises to pay original principal along with interest that is due by a set date called maturity date.

Also known as fixed-income investments, bonds assure a regular and steady income to investors. There are different types of bonds, each having its own characteristics and features. Corporate bonds, US treasury notes, municipal bonds, agency bonds, and zero coupon bonds are some of the types of bonds. Just like stocks, bonds can be sold and bought from the open market. They are traded mostly by institutions such as insurance companies, pension funds, and banks.

Compared to stock, bonds are liquid and can be cashed anytime after six months of their issue date. It is also possible to sell one’s investment in bonds. Investing in bonds is safe because it guarantees to return the entire principal amount along with interest, which is a valuable income for retired couples and individuals. Interest is paid to the bondholder either monthly or quarterly.

Bonds also offer tax benefits for certain investors. For instance, the interest earned from bonds that are issued to raise money for building bridges and roads is always tax exempted. Hence, bonds are beneficial for those who are retired or want to reduce their total tax liability.

Bonds provides detailed information on Bonds, Stock and Bonds, Savings Bonds, Bail Bonds and more. Bonds is affiliated with Commodity Brokers.

Issued by the UK government’s National Savings and Investments scheme, premium bond is an easy and secure way to save money along with a chance of winning tax-free prizes. It ensures investors that their capital remains 100% safe. Generally, there are two types of premium bonds – non callable bonds and callable bonds.

A premium bondholder invests money in the government. Instead of paying interest to bond holders, the government pays money into a prize fund and provides the bondholder a chance to win tax-free prizes. Premium bonds cannot be held in joint names and are not transferable to another person. One of the major advantages is that all or a part of premium bonds can be cashed any time you want.

The bond holder is assigned with a series of numbers for each £1 invested. For instance, 100 bond numbers are provided for the purchase of £100 worth of bonds. Therefore the bondholder has 100 chances of winning a prize. The random number is generated by a machine called Electronic Random Number Indicator Equipment (ERNIE). Every month a draw is made and the bondholder can win anything from £50 to £1million. The prize you win from the draw is free of UK Income and Capital Gains Tax.

Premium bonds can be bought by phone or one can get the application form from the post office. The application can be downloaded from the internet also. Premium bonds allow an investor to invest a minimum amount of £100; they are sold in multiples of £10. The maximum holding limit is up to a total of £30,000. Any one who is aged 16 years or above can apply for premium bonds. For children under 16, premium bonds are bought by their parents, or guardians.

Bonds provides detailed information on Bonds, Stock and Bonds, Savings Bonds, Bail Bonds and more. Bonds is affiliated with Commodity Brokers.

Savings bonds are a good investment choice, partly because income tax liability can be deferred until the year that the bond is cashed. You will not be required to pay income tax from the interest earned on a bond until the year that you cash the bond, which lets you determine the best time for the interest to be reported to the IRS. This type of reporting is called cash basis reporting. If you decide to report the accrued interest each year on your tax return, this is called accrual basis reporting. Once you start with this type of reporting, you must continue until the bond is cashed. You can decide with method of reporting will be best for you.

When you do redeem the bond, you may be in a lower tax bracket than you are now, so the amount of tax that you owe would be lower than if you were required to pay tax on the interest earned each year. If you purchase electronic bonds from the TreasuryDirect website one thing to note is that when the bond stops earning interest, the bonds are automatically redeemed and the accrued interest is reported for that tax year.

In some cases, you may be required to pay federal income tax early. These reportable events include:

• If a bond is reissued without the name of a living owner or principal co-owner.
• If a bond is reissued and the name of a surviving beneficiary does not appear on the reissued bond as the owner or co-owner.

In these events, the person that is giving up the ownership of the bond will be responsible for reporting the income tax. The IRS will send a form 1099-INT to the former owner of the bond.

So who must report the interest on a bond?

• If you purchase a bond in your name and another person is named a co-owner, you will be responsible for the tax since the bond is in your name.
• If you purchase a bond in the name of another person, for example as a gift, and that person is the sole owner, the person who’s name is on the bond will be responsible for the taxes.
• If you and another person purchase a bond as co-owners splitting the cost of the bond, both you and the person you purchased the bond with, the co-owner, are responsible for reporting the tax.

Savings bonds can be redeemed without penalty if the bond is at least 5 years old. If you redeem a bond that is less than 5 years old, you will lose three months of accrued interest.

To learn more about savings bonds and to calculate the current values and interest earned of your savings bonds, visit our free Savings Bond Calculator.

When the U.S. Savings Bond has one individual named on the Savings Bond and that person dies it will go to their holdings. The executor or administrator of the deceased holdings is the only person authorized to deal with the bonds after a person’s death. When two persons are named and one dies the bond automatically goes to the survivor. When two persons are listed on the bond and they both die, the bond goes to the estate of the last person who died.

There are several choices for the surviving holder of a bond that is named on the bond. The survivor can choose to take no action and hold the bond. They can redeem it. They can also have the bond re-registered to their name and add another person to the U.S. Savings Bond. When there is no survivor named on the bond and there is no court involvement then the person’s entitled to the bond should fill out form PD F 5336 with the Department of Treasury to claim the bond. If the bonds are greater than $100,000 then they must be administered. When the estate is settled under a provision relating to Small Estates then the specific persons awarded the bonds may seek proceeds by endorsing the bond. If no person is awarded the U.S. Savings Bond then all persons making a claim should fill out form PD F 5394 with the Department of Treasury. The bond could also have been registered with a payable upon death request with a beneficiary listed. The beneficiary then becomes the sole owner of the security and would receive the proceeds.

The new owner of the savings bonds should list the taxable interest on their returns when the U.S. Savings Bonds are redeemed. They also need to include the interest when they reach final maturity or are exchanged in an event that causes a tax liability. The interest earning while the deceased was still living should be put on the deceased holder’s tax return.

To learn more about savings bonds and to calculate the current values of your savings bonds, visit our free Savings Bond Calculator.

Don’t get confused. Investing in bonds or an income fund has little in common with buying U.S. Savings Bonds. The government guarantees that you will not lose money in savings bonds. There is no market risk in these savings products. When investors speak of bonds they are not referring to savings bonds.

A bond fund is sometimes labeled as an income fund, because the primary objective is to provide higher income vs. other investments. These funds pay dividends from the interest earned on the bonds in the fund portfolio. Along with this higher income, investing in bonds involves risk. Bond prices or values fluctuate because bonds are marketable securities that trade in the open market, much like stocks do.

In order to understand investing in bond funds, you first need to learn some bond basics. Let us turn our attention now to a simplified bond example, a new issue of a very basic corporate bond.

ABC Corporation decides to raise a large sum of money to expand their operations. Instead of selling stock to the public, they decide to sell bonds. In other words, they will borrow money from investors. Each bond has a face value or initial bond price of $1000. The coupon rate will be 6%. These are high quality bonds and mature in 2039. Once all of the bonds are sold ABC gets their money, and these bonds begin to trade in the bond market.

If you buy an ABC bond for $1000, ABC promises to pay you $60 per year, or 6%, for as long as you own it until 2039 when the bond matures. At that time the bond owner gets the $1000 back, and the bond no longer exits. Up until that time the deal never changes. ABC promises to pay the bond owner $60 per year, period.

You as a bond holder are not required to hold the bond until 2039. You can sell it at will on the bond market, or buy more bonds at market price if you wish. But beware that bond prices fluctuate, as do stock prices. Bond prices or values can go up and they can go down. In other word, a $1000 bond is not necessarily worth $1000 after it is issued. Hence,there is market risk involved when investing in bonds.

Now picture an income fund invested in a portfolio of bonds similar to ABC bonds. Because this bond fund holds a wide variety of different bonds, investors need not worry about a company like ABC going broke and not making interest payments or not paying investors back upon maturity. The fund is broadly diversified.

The real risk you should be aware of when investing in bonds and bond funds is of a different nature, and this risk is called interest rate risk. Interest rates in the economy fluctuate, but a bond’s coupon rate does not. ABC bonds, for example, pay $60 per year, period.

What happens when long term interest rates in the economy go up? Simply this: the value of existing bonds, in other words bond prices, go down.

Look at it this way. If interest rates double and go from 6% to 12%, new bonds will be paying investors $120 per year in interest vs. $60. What do you think investors in the bond market would be willing to pay for a 6% bond under these circumstances? Since investors buy bonds for the higher interest they offer, the price of our 6% bond will fall like a rock. The bond price will not likely fall in half, but it will be heading in that direction.

Interest rates peaked in 1981-82, and have generally been falling since. Contrary to our above example, falling interest rates send bond prices higher. Investors in bonds and bond funds get income from interest or dividends when interest rates fall, plus the value of their investment increases.

But interest rates can not fall forever. When they do head north again many folks invested in bond funds or income funds will be caught standing flat footed. Invest informed and understand this: When interest rates go up significantly, the value of your bond investments will fall.

A retired financial planner, James Leitz has an MBA (finance) and 35 years of investing experience. For 20 years he advised individual investors, working directly with them helping them to reach their financial goals.

Jim is the author of a complete investor guide, Invest Informed, designed for average investors or would-be investors of all levels of financial background and experience. To learn more about investments and investing and his new financial guide go to http://www.investinformed.com

The EE is similar to the I-bond in that it is re-priced semiannually. The main difference is that the adjustment is on the main rate, there is no inflation component. It used to be that the EE was a variable rate bond with a rate placed at 90% of the average five-year securities yield for the previous six months. As of May 2005, the EE has been transformed into a fixed-rate bond. The rate is adjusted every six months. The rate you receive when you purchase the bond will be your rate for the duration of the bond. It is based on the 10-year average for the preceding month.

It’s a bit of a timing question. The fixed rate is great when interest rates are high, but not so great when rates are low and expected to rise. You could find yourself waiting to long just to receive the best rate.

The EE Bond works through interest accrual. The interest is added to the amount you originally paid throughout the life of the loan. Compounding interest raises the value of your bond. The interest earned will be subject to federal income taxes. Local and state taxes are not levied.

The EE can be purchased at many financial institutions, both local and online, and through your employer’s payroll savings plans. The bonds come in eight denominations if purchased through a financial institution or your savings plan, they include: $50, $75, $100, $200, $500, $1,000, $5,000 and $10,000. If you purchase the bond online, there is a $25 denomination available.

You will pay half of the face value on paper EE Bonds. For example, a $50 bond will cost you $25. Electronic bond are purchased at their face value. It isn’t better to buy one over another because you only earn interest on the amount you paid for the bond.

If you buy a $200 paper EE Bond for $100, and someone buys a $100 electronic bond for $100, you will both receive the same amount of interest. It is based on the amount you have paid. But if the other person buys an electric bond with a $200 face value, you will be receiving half the interest that they do.

There isn’t any inflation protection built into the bond, but on average, the bond has a history of doing 2% better than inflation on an annual basis. That was before it was switched to a fixed rate. Now be aware that there is absolutely no inflation protection expected.

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There are two types of savings bonds issued by the government: the I-bond and the Series EE Patriot Bond. The I-bond is a savings bond that is inflation-indexed. Every May and November, the Treasury Department adjusts the inflation premium. The fixed rate of the bond that you purchased is fixed for the full term of the bond. The inflation premium is adjusted so that you do not lose the purchase power of your investment over time.

For example, you buy an I-bond in December. Your fixed rate was set in November and is your permanent rate. For six months, you will receive the inflation premium that was set in November. In June, you inflation premium is adjusted to whatever rate the Treasury establishes in May. Your fixed rate is not changed.

Each month your I-bond increases in value, and interest is compounded semiannually. The interest is compounded and paid at maturity. You can report the interest each year as it is accrued, or you can defer the payment of federal taxes until the bond is cashed. You decide when you pay the tax.

I-bonds that are used to pay for college tuition and fees are 100% exempt from federal taxes. The bond owner must pay for the higher education expenses at an eligible institution within the same year as the bonds are cashed.

Many financial institutions, including online institutions, will sell and redeem I-bonds. You may be able to purchase them through your employer’s payroll savings plan. You can purchase them through financial institutions in eight denominations: $50, $75, $100, $200, $500, $1,000, $5,000 and $10,000. If you buy them online through TreasuryDirect, a $25 denomination is also available.

You can purchase up to $30,000 in paper I-bonds each year. You can also purchase $30,000 in electric I-bonds in addition to your paper bonds.

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Series EE Savings Bonds can be purchased electronically through the TreasuryDirect website. Paper EE Bonds are still available at most financial institutions or through employer sponsored payroll savings plans. There are a few key differences between electronic and paper bonds.

Electronic Bonds

• You can purchase a maximum of $5,000 in one calendar year.
• EE Bonds are purchased in amounts of $25 or more.
• Electronic bonds are issued electronically to your TreasuryDirect account.
• Sold at face value and is worth its full value when available for redemption.

Paper Bonds

• You can purchase a maximum of $5,000 in one calendar year.
• They are sold in denominations of $50, $75, $100, $200, $500, $1,000, $5,000 and $10,000
• You are issued paper certificates
• Sold at half their face value. You pay $25 for a $50 bond. The bond is not worth its face value until it has matured.

The interest earned on your savings bonds is subject to federal income tax, which can be deferred until redemption, final maturity, or other taxable disposition, whichever occurs first. Savings bonds are also subject to estate, inheritance, gift, or other excise taxes, whether federal or state.

To learn more about savings bonds and to calculate the current values of your savings bonds, visit our free Savings Bond Calculator.

EE Saving Bonds

EE bonds are very popular U.S. savings bonds. These bonds are not transferable and gather interest for up to thirty years after the issue date, so they make good gifts for family or a good method to begin a savings for children, as there is a penalty for cashing the bond within the first five years. Some more interesting facts about EE bonds:

* They come in denominations of $50 , $75 , $100 , $200 , $500 , $1,000 , $5,000 and $10,000.

* They were first issued in January 1980

* They are purchased at half of their face value and accrue interest until they are cashed, up to 30 years.

Series E Bonds

These savings bonds are also known as ‘War bonds’ because they were issued starting in May of 1941. E bonds were replaced by EE bonds in 1980 and were the longest running bonds available to American investors. They come in denominations ranging between $25-$10,000, and they are also non-transferable. Some issuing facts:

* They are purchased at 75% face value

* Bonds purchased between 1941-1965 carry their interest for up to 40 years

* They have a guaranteed mimimum investment yield of 4 percent compounded semiannually for those with maturity periods after March 1, 1993.

Series I Bonds

I bonds are relatively new, having been issued first in 1998. They were issued to protect investors from inflation, and therby have a unique interest rate calculation based on the inflation rate and the fixed interest rate that the government sets twice yearly. I bonds can be purchased in denominations that range from $50 to $10 and are purchased at face value. They accrue interest monthly and compound interest for up to thirty years. Other interesting facts about I bonds:

* They can come in book-entry or definitive form

* Can be purchased through banks or through your employer

* investors cannot exchange I bonds for HH bonds

* They must be held for a minimum of 12 months

On http://www.bond-trading.org/ you will find articles about california municipal bonds and is it safe to invest in corporate bonds.

As of May 1st, 2005 the United States Treasury Department has modified its mode of computing the interest rates of its savings bonds. Rates no longer change periodically twice yearly. Instead interest rates remain unchanging for the duration of the bond.

Government savings bonds may take several years to attain face value, but exactly how many years? This is no easy task to estimate. You can’t really know when, because the securities are contingent on the changing market value of the Treasury notes.

Anyhow, you should expect Government savings bonds to take longer to mature if the market rate is low. But ordinarily, EE bonds shouldn’t go over twenty years to reach face value and attain maturity. Hence, the maturity of the bonds is directly influenced by its market value.

What once used to be a headache is now a joy to handle your Government savings bond. We are talking about the “Savings Bond Wizard” software which the US Treasury Department placed at the public’s disposal at no cost. With this software you can get a true value of your bonds at anytime so to better plan ahead.

Besides the Treasury Department’s savings bonds calculating software, there are other tools available on the Internet for you to use. One of those tools is an online calculator which does essentially the same job and may also be easily found on the World Wide Web.

You can discover more as it relates to US savings bonds at the website. Additionally, you can find a significant number of finance articles to meet your retirement planning and personal finance needs.