A bond is a loan to an issuer: you lend money to a government, municipality, or corporation under terms that specify how interest and principal are paid. You can buy individual bonds directly or through a broker, or invest in a bond fund—but each route has different risks and does not promise the same outcome.
Whether bonds make sense for you depends on your goals, time horizon, risk tolerance, and need for access to your money. Product mechanics alone do not establish that current yields are attractive or that this is the right time for you to invest.
What you own when you buy a bond
An individual bond is a debt security issued to raise money. Its terms set out the issuer’s obligations, which commonly include interest payments and repayment of principal at maturity. Those payments are promises, not guarantees: an issuer may fail to pay, and a bond’s market price can move before it matures.
A bond fund instead owns a portfolio of bonds. The fund’s holdings and share value change over time, so you should not assume a fund will return a fixed principal amount on a particular date. Review the fund’s prospectus for its holdings, objectives, fees, risks, and distribution policies.
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Know the main types of U.S. bonds
Treasury bills, notes, and bonds
U.S. Treasury marketable securities are issued by the federal government. Their names describe different maturities and payment structures:
- Treasury bills mature in one year or less. They are sold at face value or at a discount, rather than paying the same kind of periodic coupon as a note or bond.
- Treasury notes mature in 2, 3, 5, 7, or 10 years and pay fixed interest every six months. They can be sold before maturity.
- Treasury bonds are long-term securities with 20- or 30-year maturities and pay interest every six months.
These terms and mechanics are described by TreasuryDirect for bills, notes, and bonds.
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TIPS and floating-rate notes
Treasury Inflation-Protected Securities (TIPS) are Treasury notes and bonds whose principal adjusts with changes in the Consumer Price Index. Floating Rate Notes (FRNs) have a variable interest rate tied to a Treasury bill rate. Their terms differ from fixed-rate notes and bonds; consult TreasuryDirect’s pages on TIPS and FRNs for current product details.
Municipal and corporate bonds
Municipal bonds are issued by state and local governments and related entities; corporate bonds are issued by companies. Their credit risk depends on the issuer and the specific security. Tax treatment also varies by security and investor circumstances, so check current federal, state, and local rules rather than assuming a general tax result.
Marketable Treasury securities are not savings bonds
Treasury bills, notes, bonds, TIPS, and FRNs are marketable and transferable. Savings bonds have different terms and are not interchangeable with marketable securities. TreasuryDirect describes itself as the official U.S. government application for buying and holding both savings bonds and Treasury marketable securities; see its official site.
How to buy an individual Treasury security
You can buy a marketable Treasury security at auction or in the secondary market. TreasuryDirect’s current information, accessed in 2026, lists a $100 minimum for marketable securities and says a newly purchased marketable security held there generally must remain in the account for 45 calendar days before it can be transferred or sold. It also says there is no charge to open or manage an account. Check TreasuryDirect’s live instructions before acting because procedures and terms can change.
- Choose the security and maturity. Match the bill, note, bond, TIPS, or FRN to when you may need the money and how you want interest or inflation adjustments to work.
- Select a purchase route. Use TreasuryDirect for direct ownership, or a bank, broker, or dealer for auction access and secondary-market purchases. A broker may charge fees or impose its own minimums and terms; check those before placing an order.
- Choose auction or secondary market. At TreasuryDirect, an individual can place a noncompetitive bid, agreeing to accept the auction-determined rate, yield, or discount margin; TreasuryDirect says the bidder receives the requested amount. Through a bank or broker, competitive bidding may also be available: you specify an acceptable yield, but allocation is not assured. In the secondary market, the price may be above or below face value, and accrued interest may affect the amount paid.
- Review the order before confirming. Verify the security, maturity date, price or bid terms, quantity, settlement details, and any fees. Keep the confirmation and the security’s terms for your records.
TreasuryDirect provides the current purchase routes and bid descriptions on its buying a marketable security page. Direct TreasuryDirect purchases are held in that account; its 45-calendar-day holding rule can matter if you may need to transfer or sell soon.
How bond prices and yields affect your result
A bond’s market price can be above or below its face value. For a fixed-coupon bond, the relationship between coupon and yield to maturity helps explain the price: when yield to maturity is above the coupon rate, the price is below par; when yield is below the coupon rate, the price is above par. TreasuryDirect explains this relationship in its guidance on understanding pricing.
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If you hold an individual bond until maturity and the issuer pays as promised, the security’s terms call for repayment of principal at maturity. If you sell earlier, the market price may be higher or lower than what you paid or the face value, so you can realize a gain or loss. Rising market interest rates generally put downward pressure on the price of existing fixed-rate bonds; falling rates can have the opposite effect. The size of the price move depends in part on the bond’s maturity and other terms.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Compare bonds by the risks and features that matter to you
| Question | What to examine |
|---|---|
| Who is the issuer? | Identify whether the bond is issued by the Treasury, a municipality, or a corporation, and assess whether the issuer could fail to make promised payments. |
| When is principal due? | Check the maturity date and whether you might need to sell first. Longer exposure to rate changes can mean larger price swings when market rates move. |
| How is inflation handled? | Fixed payments can lose purchasing power as prices rise. TIPS adjust principal with CPI changes, but their terms and market prices still matter. |
| How readily can you sell? | Consider the security’s liquidity, where it is held, access to a secondary market, and any account-specific transfer or sale restrictions. |
| How is it taxed? | Tax treatment depends on security type and personal circumstances. Confirm current federal, state, and local rules with an authoritative source or qualified tax professional. |
| Do you need a maturity date? | An individual bond has a stated maturity. A bond fund’s portfolio and value change, and the fund should not be treated as promising repayment of a fixed amount on a date. |
Risks to understand before investing
- Default risk: A corporate or municipal issuer may be unable to pay interest or principal; Treasury securities also have risks and are not a substitute for understanding the security’s terms.
- Interest-rate risk: If market rates rise, existing fixed-rate bond prices can fall, particularly when you need to sell before maturity.
- Inflation risk: Inflation can reduce the purchasing power of fixed interest and principal payments. TIPS’ CPI-linked principal adjustment is designed to address inflation exposure, but does not eliminate price or other investment risks.
- Liquidity risk: You may not be able to sell promptly at a price you consider acceptable. Product type, market conditions, and how you hold the security matter.
- Call risk: Some bonds allow the issuer to repay them early under specified terms. If called, you may have to reinvest the proceeds at a lower rate.
How to decide whether bonds fit your plan
Start with the job you want the investment to do, not a prediction about whether this is the right moment to buy. Consider whether you need a known maturity, exposure to inflation-adjusted principal, income, diversification, or access to funds. Then compare the issuer, maturity, rate sensitivity, credit quality, liquidity, taxes, and—if considering a fund—its prospectus and portfolio behavior.
Current yields, auction results, market prices, tax rules, broker terms, and TreasuryDirect procedures can change. Check current information from the issuer or your financial institution, and consider professional advice for decisions involving your broader financial or tax situation.
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