Bonds are coupons that secure debt owed to the holder of the coupon. Once the bond or coupon matures, the debt will be paid. Many bonds are held for over ten years or more. When it comes down to it, a bond is the same as a loan. You purchase the bond and keep it while it accumulates interest. Once the term has finished, you can cash it in. Many people prefer bonds for their higher interest rates. These are considered to be a smart investment.

Since a bond is essentially a loan, it has a higher risk than those who purchase stock. A stock holder will own part of the company while bond holders are lenders. Bonds must be redeemed at maturity but stock can be held indefinitely. There are many types of bonds and finding the right one for your needs may take some research.

A fixed rate bond will remain at the same rate throughout it's life while floating rate bonds can have changing rates during it's life, often every three months. Zero coupon bonds have no interest. Since no interest is paid, the full value plus the principal amount will be redeemed upon maturation.

Bearer bonds are no longer issued due to their ability to be easily counterfeited. These bonds were traded like cash and have no named holder, which made it possible for others to cash in if the bond is stolen. A registered bond is a better way to issue a bond. The holders are recorded and are much harder for another person to cash out. Once this bond matures, the principal and interest are sent directly to the registered bond holder.

A book entry bond is only recorded in a book of sales. No paper certificate is issued making this a safer way to deal with bond issues, such as loss or stolen bonds. Many investors now prefer book entry bonds. Municipal bonds are issued by the state or local government. Many bond purchasers also prefer these bonds because they are exempt from federal taxes.

Choosing the right bond for you and your family, will depend on several factors; cost, interest rate, length of maturity and risk. Take all of these into consideration before purchasing your bonds. About 10 percent of all bonds are held by individuals while 90 percent are bought and traded by companies. Bonds are often sought out when stock markets begin to fall since bonds are often thought of as a safer risk than stocks.