Table of Contents
Types of Bank Investments
Certificate of Deposit
Types of IRAs
401k Plans
Types of Bond Investments
Fixed Income Investing
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Bonds
Zero Coupon Bonds
Government Backed Bonds
Government Savings Bonds
Municipal Bonds
Bonds are loans given by the investor to the issuer. Given this, the bond is redeemed when the issuer pays back the loan at the end of a pre specified period. Government treasury bonds or bonds issued by long standing established companies are sound investments as these lenders are safe and not likely to default on the repayment.
The interest yield on the bond is clearly mentioned at the time of purchase. Even if the markets tank, your interest is insulated if you have a bond purchased earlier. This is the main reason why bonds typically yield better returns when share prices are falling to dismal levels or the economy is in recession.
There are many types of bonds:
These are bonds sold at huge discounts from the face value. The interest payments are accumulated until the maturity of the bond and paid up along with the redemption amount. If you expect a large future expense, then a zero coupon bond is your ideal investment option.
However, a quirk in the taxation rules requires that you pay taxes on the receivable interest annually even if it is not actually disbursed to you. Because of this a zero coupon bond makes a perfect IRA investment.
These are highly secure investments and include treasury bonds and bills. The interest yield is slightly lower than other bonds because of the complete safety guaranteed with these instruments. Other agencies and federal institutions also issue similar bonds.
While these may not have the full backing of the government, they are considered just as safe for investment purposes. The degree of government backing determines the interest rates payable on these bonds.
These are completely safe bonds, which are also free from state and local taxes. Many parents opt for purchasing these bonds in the minor’s name to take advantage of his or her zero federal tax status to avoid tax completely with these bonds.
These are bonds issued by cities, towns, counties, districts, municipal bodies et al. These bonds are federal income tax free and also, for most part free from state taxes. The tax free feature sets off any loss from the lower interest rate that these instruments usually carry.
