- Bond ratings and risk
The lower the bond rating, the higher the risk and the interest rate. If you opt for a higher interest rate by buying a bond with a "B" rating, that means there's a possibility that the debtor may default, in which case you'd lose your original principal. A rating of "CCC" means an even higher interest rate, but it also signifies that a company or municipality may be on the cusp of defaulting. Risk can be its own reward, but it can also be an bond investor's downfall.
- Introduction to saving bonds
Savings bonds are securities that can only be issued by the Treasury and may not be traded, resold, or given to anyone other than the person named on them. Series EE Savings Paper Bonds are the most popular Treasury issue, partially because they can be purchased pretty cheaply. They're sold for half the face value, in denominations ranging from $50 up to $10,000. Interest is calculated as 90 percent of six-month five-year Treasury Securities yields.
- Corporate bonds - decent income, low risk
Corporate bonds of financially sound blue chip companies are considered very safe investments, and they pay slightly higher yields than government bonds. All bonds are rated by such investment services as Standard & Poor's or Moody's. Bonds rated BBB or higher (through AAA) by Standard & Poor's or Duff & Phelps, or Baa by Moody's are considered investment-grade bonds. Anything rated lower would be considered a "junk bond."
- Return and risks of municipal bonds
Municipal bonds pay a lower rate of return than most other types of bonds, including T-bonds, T-bills, and corporate bonds. However, because of their tax-favored status, the relative after-tax return municipal bonds offer would still be nearly as good as - if not better than - many other bonds (depend into your tax bracket). High-quality municipal bonds yield about 15 percent less than comparable government securities, so if you're in the 15-percent tax bracket, or higher, your relative return with municipal bonds could be as high as T-bonds and T-notes (or higher, depending on your state tax status).
- How to buy Treasury Bills (T-bills)
Treasury bills (T-bills) may be purchased for $10,000 or higher in multiples of $5,000. When purchasing treasury bills, investors pay less than the face amount to buy the bills, but receive the full face amount when the bill matures. T-bills do not make interest payments.
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