Merrill A Bank of America Company Merrill A Bank of America Company Open an account Login Open Menu bar Find answers to common questions at MerrillSchedule an Open an accountwith Merrill What is fixed income?tab 1 of 3 selectedWhy invest in fixed income?tab 2 of 3Things to considertab 3 of 3 Fixed income refers to investment securities that pay investors fixed interest payments until the maturity date. The most commonly known fixed income investments are government and corporate bonds, but CDs and money market funds are also types of fixed income. Treasury bonds are government debt securities issued by the U.S. federal government that have maturities from between a few days and 30 years. They earn periodic interest until maturity and are generally exempt from state and local taxes. A municipal bond is a fixed income security issued by a municipality. Interest income is generally exempt from federal and state taxes, but capital gains distributed are taxable to the investor.Footnote1 A corporate bond is any bond issued by a corporation for investors to purchase. They're issued in blocks of $1,000 and are a major source of financing in the private sector. Corporate bonds are fully taxable. Agency bonds are government securities issued by entities other than the U.S. Treasury that have a maturity of no more than 30 years. Generally, they are subject to federal and state tax. A certificate of deposit (CD) is a bank-issued deposit instrument with a set maturity and interest rate. Maturities range from a few weeks to several years. If you're looking for more information, check out these responses to some of the common questions investors have about fixed income Expand all Bonds are issued by governments and corporations with the purpose of raising money. When you buy a bond, you're giving them a loan that they agree to pay back with interest. Bonds can have a variety of timelines for paying back interest, as well as a range of ratings from AAA (highest) to D (lowest) which reflect levels of risk. You can invest in individual fixed income (bond) securities, in fixed income mutual funds or ETFs, or a combination of these investing options. If you invest in mutual funds or ETFs, you're investing in a basket of many different fixed income investments (which can help provide exposure to various markets, sectors, maturities and credit qualities.) These funds are professionally managed, either actively or passively. Bonds can pay interest across a range of frequencies such as, monthly, quarterly, and at maturity, although semi-annual is the most common. Stocks give investors a share of ownership in a company. They come with more risk, but they typically offer the potential for higher returns. A bond represents the debt of the issuing entity, which could be a company, government or other organization. They typically offer a lower rate of return, but they can offer a way to generate regular income. A bond is a loan an investor makes to the bonds' issuer. When the bond matures, the issuer returns the full principal that was loaned. They also typically pay regular interest payments to investors. Discover more resources related to fixed income investments and enhance your investing knowledge. +Show moretopics Use Merrill's powerful investing tools to get actionable insights and find the best investments for you. Our expertise will help you find ideas, narrow down your options and help you understand individual investments at a glance. Learn moreabout Merrill investing tools Build foundational investing skills, learn to identify the right assets for your portfolio and discover tools to help you along the way. Stockseducation at MerrillETFseducation at MerrillMutual Fundseducation at MerrillOptionseducation at Merrill Open an accountwith Merrill 888.637.3343 Investing involves risk including the possible loss of principal investment. Investing in fixed-income securities may involve certain risks, including the credit quality of individual issuers, possible prepayments, market or economic developments and yields and share price fluctuations due to changes in interest rates. When interest rates go up, bond prices typically drop, and vice versa. Footnote1 Income from investing in municipal bonds is generally exempt from federal and state taxes for residents of the issuing state. While the interest income is generally tax-exempt, any capital gains distributed are taxable to the investor. Income for some investors may be subject to the federal alternative minimum tax (AMT). Footnote2 Diversification, asset allocation and rebalancing do not ensure a profit or protect against loss. MAP6174746-06262025 Investing in securities involves risks, and there is always the potential of losing money when you invest in securities. Asset allocation, diversification, and rebalancing do not ensure a profit or protect against loss in declining markets. Merrill, its affiliates, and financial advisors do not provide legal, tax, or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions. This material is not intended as a recommendation, offer or solicitation for the purchase or sale of any security or investment strategy. Merrill offers a broad range of brokerage, investment advisory (including financial planning) and other services. Additional information is available in our Client Relationship Summary (PDF). Merrill Lynch, Pierce, Fenner & Smith Incorporated (also referred to as "MLPF&S" or "Merrill") makes available certain investment products sponsored, managed, distributed or provided by companies that are affiliates of Bank of America Corporation ("BofA Corp."). MLPF&S is a registered broker-dealer, registered investment adviser, Member Securities Investor Protection (SIPC) popup and a wholly owned subsidiary of Bank of America Corporation ("BofA Corp"). Merrill Lynch Life Agency Inc. (MLLA) is a licensed insurance agency and wholly owned subsidiary of BofA Corp. Banking products are provided by Bank of America, N.A. and affiliated banks, Members FDIC and wholly owned subsidiaries of Bank of America Corporation. Investment products offered through MLPF&S and insurance and annuity products offered through MLLA: Privacy|Security|Glossary|Advertising practicespopupAdvertising Practicespopup © 2024 Bank of America Corporation. All rights reserved. 4326521
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Common questions about fixed income
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Is a bond a loan?
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FAQs
What are bonds and CDs? ›
CDs are short-term, low-risk, interest-paying storage for money until a more profitable investment or a better use for the money can be found. Bonds are long-term vehicles for a guaranteed profit and, for many investors, a safer haven to offset the risks of losses in other investments such as stocks. BankRate.
What are bonds and fixed-income investments? ›Fixed-Income securities provide investors with a stream of fixed periodic interest payments and the eventual return of principal at maturity. Bonds are the most common type of fixed-income security. Different bonds have different term lengths depending on how long the issuer wishes to borrow for.
Is it better to buy treasuries or CDs? ›While Treasurys boast higher rates than CDs, you can still score a generous annual percentage yield (APY) on a CD by shopping around. Typically, online banks offer higher interest rates than brick-and-mortar ones. Some of the best CDs have APYs that top 5%.
Are I bonds better than CDs? ›If you're investing for the long term, a U.S. savings bond is a good choice. The Series I savings bond has a variable rate that can give the investor the benefit of future interest rate increases. If you're saving for the short term, a CD offers greater flexibility than a savings bond.
Is now a good time to buy bonds? ›Answer: Now may be the perfect time to invest in bonds. Yields are at levels you could only dream of 15 years ago, so you'd be locking in substantial, regular income. And, of course, bonds act as a diversifier to your stock portfolio.
What bonds to invest in 2024? ›| Ticker | Fund | Expense Ratio |
|---|---|---|
| BLV | Vanguard Long-Term Bond ETF | 0.04% |
| ZROZ | PIMCO 25+ Year Zero Coupon US Treasury ETF | 0.15% |
| VCIT | Vanguard Intermediate-Term Corporate Bond ETF | 0.04% |
| IEF | iShares 7-10 Year Treasury Bond ETF | 0.15% |
Most experts consider Treasuries to be the safest fixed-income investments because they are backed by the government.
What is the best fixed-income investment? ›Investments that can be appropriate include bank CDs or short-term bond funds. If your investing timeline is longer, and you're willing to take more risk in order to potentially earn higher yields, you might consider longer-term Treasury bonds or investment-grade corporate or municipal bonds.
What is an example of a fixed-income bond? ›Treasury bonds and bills, municipal bonds, corporate bonds, and certificates of deposit (CDs) are all examples of fixed-income products.
Where is the best place to put your money? ›The best places to save money include high-yield savings accounts, high-yield checking accounts, CDs, money market accounts, treasury bills and savings bonds.
Should I buy T-bills or I bonds? ›
The Bottom Line
Both Treasury bonds and Treasury bills are low-risk debt securities issued by the federal government. T-bonds are designed for long-term investing, while T-bills have much shorter maturity periods. Both can help diversify your investment portfolio while shielding you from state and local taxes.
Key takeaways. Interest earned on CDs is considered taxable income by the IRS, regardless of whether the money is received in cash or reinvested. Interest earned on CDs with terms longer than one year must be reported and taxed every year, even if the CD cannot be cashed in until maturity.
How much is a $100 savings bond worth after 30 years? ›| Face Value | Purchase Amount | 30-Year Value (Purchased May 1990) |
|---|---|---|
| $50 Bond | $100 | $207.36 |
| $100 Bond | $200 | $414.72 |
| $500 Bond | $400 | $1,036.80 |
| $1,000 Bond | $800 | $2,073.60 |
One reason to buy a CD over a bond is if you're looking for a very short-term investment. CDs are available in three-, six- and nine-month term lengths, which can give you a very predictable return for a need in the near future. While you can cash in bonds at any time, some of them carry penalties.
What is the downside to I bonds? ›Key Points. Pros: I bonds come with a high interest rate during inflationary periods, they're low-risk, and they help protect against inflation. Cons: Rates are variable, there's a lockup period and early withdrawal penalty, and there's a limit to how much you can invest.
How does a bond work? ›An investor who buys a government bond is lending the government money. If an investor buys a corporate bond, the investor is lending the corporation money. Like a loan, a bond pays interest periodically and repays the principal at a stated time, known as maturity.
How much are bonds right now? ›| SYMBOL | YIELD | CHANGE |
|---|---|---|
| US 6-MO | 5.401 | +0.009 |
| US 1-YR | 5.223 | +0.015 |
| US 2-YR | 4.993 | -0.005 |
| US 3-YR | 4.846 | -0.008 |
Treasury bills can be a good choice for those looking for a low-risk, fixed-rate investment that doesn't require setting money aside for as long as a CD might call for. However, you still run the risk of losing out on higher rates and returns if the market is on the upswing while your money is locked in.
Do you have to pay taxes on a CD when it matures? ›If you purchase a short-term CD that matures the same year it was purchased and earn $10 or more, you'll have to pay taxes on it for that year. If the term of such a CD spans over two calendar years, you'll pay taxes on the interest you earn on two consecutive tax returns.