Bonds Interest Rate

Government Bonds?

Hey everyone, I was wondering if someone could give me a briefing on the fundamentals of government bonds. how do they work? what do you get from them? I'm thinking about getting into them. Please elaborate as much as possible, I know almost nothing, help me out please!

Public Comments

1. savings bonds http://www.ustreas.gov/offices/treasurer/savings-bonds.shtml
2. There are many different kinds that can be structured in many different ways. As far as savings bonds go... Usually, you either pay face value and earn a specified interest payment for holding the bond every 6 months, or you pay less than face value (called buying at a discount) and then hold the bond and when the time period expires it is worth the face value. For example, buy a bond with a face value of $1000, but pay only $500, hold it for 10 years, and then you can "redeem" the bond for the full $1000. The best site to learn about them (and you can purchase them there too) is http://www.treasurydirect.gov/ You can also go to any bank if you want to buy paper bonds.
3. Bonds are a loan to the issuer of the bond to put it in it's simplest terms. You receive interest at the rate shown on the bond. How often this is paid depends upon the bond. If you sell the bond before it matures you may get more or less than the face value depending upon the interest rate on the bond and current interest rates. Any difference in price on sale is treated as a capital gain and may be taxed differently. Government bonds are issued at virtually all levels of government from local cities and towns to school districts, counties, states and the Federal government. The interest can generally be taxed at the level where the bond is issued only, not at any higher or lower level. Municipal bonds are taxable at the state and lower level but not at the Federal level. US government bonds and other treasury securities are taxed at the Federal level but not at State or lower levels. The advantage of government bonds lies in their safety. The US government has never defaulted on one of its bond obligations. Few state and lower level bonds have ever defaulted and those were often bailed out at other levels of government to preserve at least part of the original investment. The downside to government bonds is that their rate of return is very low compared to other investment opportunities. Due to their safety they do have a place in any carefully planned investment portfolio but like any other investment vehicle they should not be your ONLY investment choice.