Bonds are a form of debt security which is similar to an I.O.U. It obligates the issuer to pay the bond owner a defined sum of money at a specified interval of time and repay the loan at maturity. When you buy a bond you actually lend your money to the government, corporation, municipality or any other entity that is called as an issuer. In return the issuer promises to pay you a specified interest on maturity of the bond.
The types of bonds that are available for investment are municipal bonds, U.S government securities, corporate bonds, foreign government bonds and federal agency securities. People invest in bonds in order to obtain an expected interest income and preserve the capital investment.
The type of bond decides where you can buy a bond so it is important to determine the type of bond that you would like to purchase. Municipal bonds are issued by the local municipalities or state government. They can be bought through the banks, bond dealers and brokerage firms. Individual municipal bonds can be obtained from the primary or secondary market. The interest earned from municipal bonds is free from federal taxes. There are many discount brokers that allow you to buy a bond like municipal, corporate and treasury bonds. Discount brokers like Schwab, Zions direct and Fidelity can provide you with these types of bonds.
These discount brokers charge about $1 as a commission for the bonds that are outside the treasuries. A retail bond trade mostly ranges from 25 to 50 bonds that would equate to around $25 to $50 commission. Most of the discount brokers offer free charts, recommendations and analysis for trading stocks. There are many sites that provide you with free quality research and the necessary market information regarding the stocks. But in the case of bond market there is no information provided out there to determine the type of bonds that are good to buy and sell.
Federal bonds are given out by the federal government. The interest earned from the federal bonds is exempt from local and state taxes. The U.S Treasury offers its service from where you can purchase the U.S treasury bonds from the U.S government by its website or the federal bank. The website also lets you convert the paper bonds into an electronic form.
There are a lot of firms that can offer you execution services and investing ideas but this option can be expensive. Financial advisors can recommend you about where to buy a bond and the type of bond that is favorable for you considering your current tax situation, your financial goals and your risk tolerance while making decisions on investments.
The brokerage firms may not be an ideal place to get a fair price on a bond since they buy a bond through a company that is in financial crisis and then sell the bonds closer to the face value of the bond.