investing in your future

What Is a Bond?

The term “bond” generally applies to any security that’s founded on debt. When you buy it, you agree to lend a company or government money. What do they offer you in return?

1. They agree to pay you a large fee for the use of your money.
2. They agree to pay you interest and to eventually pay back the amount you lent.
3. They agree to hold your money in trust as collateral for their loan.

“B” is correct. The main attraction of bonds is that they’re relatively safe. If you buy bonds from an economically stable government like the U.S., this investment is almost risk-free. However, safety and stability come at a cost. When there is so little risk, the potential for return is also smaller. That’s why the rate of return on bonds is generally lower than for other securities.