What are bonds & how do they work?

What Are Bonds? Bonds are investment securities where an investor lends money to a company or a government for a set period of time, in exchange for regular interest payments. Once the bond reaches maturity, the bond issuer returns the investor’s money.

What does buying a bond mean?

Essentially, buying a bond means lending money to the issuer, which could be a company or government entity. The bond has a predetermined maturity date and a specified interest rate. The issuer commits to repaying the principal, which is the original loan amount, on this maturity date.

What are bonds used for?

Bonds are debt instruments and represent loans made to the issuer. Bonds allow individual investors to assume the role of the lender. Governments and corporations commonly use bonds to borrow money to fund roads, schools, dams, or other infrastructure.