If you want to get a good return on your investment while minimizing your risk of losses, you may want to consider fixed rate bonds. Many investors choose these bonds because they get a guaranteed return on their investment and there is little chance of them losing any of their money in the process. Here are some of the most common reasons for investors to choose fixed rate bonds for their investment of choice.
Guaranteed Return
One of the most frequently cited reason for choosing a fixed rate bond is the guaranteed return offered by these bonds. A specific interest rate is promised in return for purchasing the bond and holding it for a set amount of time, after which time the bond amount and interest is payable to the bond holder. The bondholder knows exactly how much the bond will be worth at the end of the term as soon as they purchase the bond. There are not many other investments available that has the same claim.
Very Little Risk
There is very little risk associated with fixed rate bonds. These bonds are subject to a fixed rate of interest for the entire life of the bond term and will not decrease in value between the time it is purchased and the time it matures. This is very different from purchasing stocks, where there is always a chance that the stock will decrease in value before it can be sold.
Attractive Interest Rates
The interest rates offered for fixed rate bonds are often much higher than the investor would have received for a traditional savings account. Because the bonds must be held for a certain period of time before the bond matures, the issuing agent offers an attractive interest rate to entice the bondholder to tie up their funds for the required amount of time. Different bond terms will have different interest rates associated with them, so do your research and choose carefully to ensure that you are getting the best bonds for your financial needs.
Various Bond Terms
Many bond issuers have a variety of bond terms available for investors to choose from. The terms can range from as short as one month to as long as five years with the interest rate for the bond increasing with the length of the bond term. It is important that the funds used for the bond be dedicated to the bond for the entire length of time to earn the promised return. Cashing in the bond before the end of the term could subject the bondholder to penalty fees and a significant loss in the amount of interest earned.