Purchasing bonds is one of the simplest ways to get started saving.  A bond is a government or corporate security that has a fixed or variable rate of interest that is paid to the holder along with the principal at fixed periods of time.

The different type of bonds that can be purchased include government, municipal, and corporate bonds.  Government bonds generally means bonds of the U.S. Government such as EE Bonds and I Bonds.  Usually, you can get started with as little as $25 and you choose whether to buy a bond weekly, bi-weekly, monthly, quarterly, or annually.  By January 31 of the following year, you will receive Form 1099-INT to report the total interest paid on the bond(s) purchased during the prior year.  TreasuryDirect.gov is one website that can be used to set up your own account to start buying government bonds and tracking your purchases, interest paid, and other information.

Municipal bonds are debt obligations issued by state or local governments which pay a fixed or variable rate of interest and return of principal on fixed dates.  Municipal bonds can be issued to finance purposes of the government that issued the bond or for private business purposes; this is important because interest income may be completely or partially exempt from gross income when you file your tax return.  Research for how and when to purchase municipal bonds can be performed on state and local government websites – which show future or expected bond issues along with a description of the bond, purpose for which the bond will be issued, bond terms, and source(s) of funds that will be used to pay interest and principal.  Emma.msrb.org is a website that has a lot of information municipal bonds such as bonds issued by state and local governments; financial statements, independent audit reports, and material event notices; and trading activity of outstanding bonds.

Corporate bonds are issued by private corporations as a way to raise capital.  Corporate bonds are different from government and municipal bonds in that there is a minimum purchase price (of at least $1,000), the interest paid is taxable income, all of the principal is paid one time on final maturity, and the bonds are traded on major exchanges.  Corporate bonds can be purchased by setting up a brokerage account and purchasing bonds directly.

Bonds are a security and therefore carry the risk that you may not receive an interest payment(s) or full principal amount.  Therefore, bonds should be treated like a stock and research done to identify which bonds are a good investment for you.  There are Bond ETFs that can be used to benefit from owning bonds – you can purchase different bonds that pay interest on different times in order to generate a stream of money every month of the year.