The hard part is trying to determine which type of bond is good for your portfolio and how much of a risk you should consider, says Steve Lawler, an investment adviser with Lawler Financial Advisory Corp. in Peoria. All are issued for a finite length of time and are aimed at helping the issuer raise capital. Municipal bonds are issued by municipalities and school boards, often for capital improvement projects, such as a new road or school. You wouldn t have to pay federal taxes on these bonds, but you will have to pay state taxes in most states. Because they are exempt from federal taxes, interest rates tend to be a bit lower.
Corporate bonds are bonds issued by a corporation.
They tend to be a bit more risky than municipal bonds but the return can be higher, said Todd Hasty, owner of Nash- Hasty Investment Services. Finally, government bonds are usually issued by the U.S. Treasury Department. T-bills are bonds you can purchase at a discount that don t pay any interest until the maturity date. A treasury bond is like any other bond in that you get regular interest payments and your money back when the bond matures. They are considered the safest investment because, as both Meyer and Hasty put it, if the government can t repay on the bond, then there are bigger problems to worry about.