Summary of What is a Bond Account and how does it work?
- How do you account for bonds?
- How much is a $100 savings bond worth after 30 years?
- How much money is needed to open a bonds account?
- What type of account should bonds be in?
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AI Overview
AI Overview
A bond account holds debt securities (bonds) issued by governments or corporations, acting as a loan from you to the issuer for regular interest (coupon) payments and principal return at maturity, offering potentially higher yields than savings accounts but with risks like default or price changes, accessible via brokers like Public or official sites like TreasuryDirect for U.S. government bonds. These accounts provide fixed income, but returns aren’t guaranteed and depend on the bond’s performance and issuer’s creditworthiness, unlike FDIC-insured savings.
How it works
Lending Money: You buy bonds, essentially lending money to entities like the U.S. government (Treasuries) or companies (corporate bonds).
Interest Payments: You receive regular interest, called coupon payments (e.g., semi-annually), based on the bond’s fixed rate.
Maturity: When the bond matures, the issuer repays the face value (principal).
Yield: You lock in a yield at purchase, but it can change if sold before maturity or if the issuer defaults, notes Public.
Types of Accounts & Bonds
Brokerage Accounts: Platforms like Public or Schwab offer diversified portfolios of various bonds (corporate, high-yield).
Direct Government Bonds: TreasuryDirect lets you buy U.S. Treasury securities (T-bills, notes, bonds) directly.
Savings Bonds: Specific government bonds (like Series I or EE) are held in TreasuryDirect accounts and have unique rules, like interest penalties for early redemption within 5 years.
Key Considerations
Risk vs. Reward: Bonds offer potentially higher yields than savings accounts but carry risks like interest rate changes, issuer default, and market price fluctuations.
Taxes: Interest earned is typically taxable, though some municipal bond interest is federally tax-exempt, notes Vanguard.
Liquidity: Selling bonds before maturity means selling at the current market price, not always the face value, and can incur penalties on savings bonds.
Fees: Brokerage accounts may charge fees, impacting overall returns.
How to Open One
Choose a Platform: Decide between direct government bonds via TreasuryDirect or a brokerage for a wider range.
Set Up Account: Open an account with your chosen broker or TreasuryDirect.
Fund & Invest: Deposit funds and select bonds or bond funds based on your risk tolerance and goals.
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Public’s new Bond Account provides exposure to high-yield and investment-grade corporate bonds and seeks to generate more income than a high-yield cash account or US Treasuries of a similar duration. By investing in this account, members have access to a portfolio of ten bonds that generate monthly interest.
A Bond Account is a separate account provided by our clearing firm, Apex Clearing. Your Bond Account is separate from your primary Public Investing Brokerage account and will have separate statements and tax documents. Your Bond Account consists of a portfolio of 10 bond positions, each paying routine interest. The bonds in this portfolio will typically generate a higher yield than U.S. Treasuries though will come with additional risk. Each bond will have its own semi-annual interest payments and maturity dates.
How does a Bond Account work?
Deposits in your Bond Account currently have a minimum of $1000 dollars. This amount may change at a later time at Public Investing’s sole discretion. This cash can come from another Public Investing brokerage or an external account such as a linked bank account. In addition to your own deposits, cash may accrue from interest payments on bonds you own. As described in more detail below, all cash in your Bond Account is used to purchase bonds, which could include both cash from deposits but also from bond coupon payments.
What happens when a bond matures in my Bond Account?
Upon maturity, the proceeds will be allocated to the Bond cash Account. If the cash account reaches $100, a new bond purchase will be initiated pursuant to the Buy Order Methodology . Please note that a new purchase could be at a lower yield than what was previously held. To withdraw the cash, you can place a sell for the amount of the cash balance. Please keep in mind the Sell Order Methodology when placing a sell order, found here.
For further questions or information regarding a Bond Account please contact Member Support via in-app chat or email at [email protected].