Bond investments are very secure, and the returns are usually very good. Four basic types of bonds are available and sold through government, corporations, government and local authorities as well as foreign governments.
The most important thing about bonds is to get back your first investment. Thus, bonds are the perfect vehicle for new investors and those with low risk tolerance. The U.S. government sells treasury bonds through the Treasury Department. You can buy Treasury Bonds with maturities from 3 months to 30 years. Treasury Bonds includes Treasury Notes, Treasury Bills and Treasury Bonds. No Treasury Bonds are included. The U.S. government is responsible for all treasury bonds and only the interest earned by the bonds is charged for tax.
Corporate bonds are sold on the public securities market. A bond is primarily a debt selling company. Corporate bonds usually have high interest rates, but they're a little dangerous. If the company goes downhill, the bond is worthless. Governments and local governments are also selling bonds. These bonds typically have higher interest rates than bonds issued by the federal government. That's because, unlike the federal government, the government and local governments may actually go bankrupt.
State and local government bonds, including interest, are tax-free. State and local authorities may also waive taxes. Municipal tax-free bonds are common government bonds and common local government bonds. In fact, buying foreign bonds is very difficult and is often done within a mutual fund. Investment in foreign countries is often highly risky.
A bond issued by the U.S. government has the safest type to buy. Interest may be slightly lower, but the risk is small or no again. Reinvest it in another bond when a bond reaches maturity for best results.