There are certain things you must understand about bonds before you start investing in them. You may purchase the wrong bonds at the wrong maturity date if you don’t understand these things.

The three most important things that must be considered when purchasing a bond include the par value, the maturity date, and the coupon rate.

The par value of a bond refers to the amount of money you will receive when the bond reaches its maturity date. This means that your investment is what you’ll get when the bond reaches maturity.

When the bond reaches its full value, this is called maturity date. Besides your initial investment, you’ll also be getting the interest your money has earned on this date.

Bonds that can be ‘called’ before reaching their maturity are Corporate, State, and Government bonds and the issuing Government or corporation will return your initial investment together with the interest it has earned so far. But Federal bonds can’t be ‘called.’

When the bond reaches maturity, the coupon rate is the interest you’ll receive. It’s written as a percentage and you need to use other information in order to find out what the interest will be. If the bond has a par value of $2000 and a coupon rate of 5%, then it would earn $100 per year until it reaches maturity.

Banks don’t issue bonds so many people don’t understand ho to go about buying one. There are two ways this can be done.

You can use a broker or brokerage firm to make the purchase for you or you can go directly to the Government. Using a brokerage means that it’s likely for you to be charged with a commission fee. Shop around for the lowest commissions if you want to use a broker.

Purchasing directly through the Government isn’t nearly as hard as it once was. Treasury Direct is a program that allows you to purchase bonds and all of it will be held in one account so that you can easily access them. Doing this will allow you to avoid using a brokerage firm or broker.

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