Government Bonds

Government bonds are types of savings bonds offered for sale by the government. You may also hear them referred to as treasury bonds. Usually, the funds the government receives from sales of treasury bonds are used for things the government needs to pay for such as various projects. Normally, government bonds come with a fixed interest rate. The bond can be fulfilled with interest at certain points during its lifetime or at full maturity. When it comes to risk, these bonds are considered low-risk investments because the government guarantees the money. Because of this, the return is also lower than other types of investments. So there are both advantages and disadvantages to investing in government bonds.

The United States has three main categories of government bonds. They are treasury bills, (also commonly known as T-bills) treasury notes and treasury bonds. Each one is different because of the term for maturity. For example, a treasury bill is issued for a bond that is set to mature in a year or less than a year. For a longer maturity time look into treasury notes, which take between two years and ten years. Treasury bonds take more than ten years to reach maturity and pay semi-annual interest. The United States is not the only country that offers government bonds.

For example, the United Kingdom, Ireland and South Africa are a few governments who have bonds, called gilts. These gilts pay out a fixed amount each six months. When the gilt has matured the remainder is paid. Pension funds and insurance companies often hold gilts. So even if you are not in the United States check with an investment professional about bonds offered by your country. You may find them to be solid investment opportunities.

Now let’s take a look at some of the good things about investing in government bonds. As previously mentioned, these bonds are considered very low-risk, meaning the return is predictable. Unlike stocks, which have the possibility of performing better than bonds, a bond offers a guaranteed return. There are also tax breaks for holders of government bonds. For example, in the United States the interest on U.S. bonds may be tax deductible which can save money on the amount of taxes owed.

You can purchase government bonds at investment firms, banks and brokerages. There may be minimum requirements for purchase. If you want to do some research, there are government run websites that can tell you more about purchasing bonds, including the minimums, the details on maturity and much more. All in all, if you want a safe investment that you can count on for a guaranteed return, government bonds are the way to go.

Comments are closed.