Government Bonds Basics

Understanding what government bonds are and how they work
By Jennifer Randle Essentially, government savings bonds are IOUs, or loans you are giving to a company, city, state or federal government. In return, you'll receive interest based on the type of bond purchased and current government bond rates. In the investing world, US government bonds are a safe, risk-free option that can balance your portfolio.

When researching government bonds for sale, it's important to understand the specific types available--including municipal bonds, corporate bonds, and government bonds--as they have varying risk levels. In addition to types, you'll also want to assess the following considerations to decide what government bonds are right for you.

1. The "face value" of a government bond is the value shown on the certificate. This is the amount the bond holder will receive when it reaches maturity.

2. The "coupon rate" refers to the annual interest rate accruing on a US savings bond, for example.

3. Once a government savings bond reaches "maturity," the issuer is responsible for paying back the bond holder the face value.

Learn more government bonds basics at well-known financial websites

To the new investor, a US savings bond may not be a first choice in investments, simply because information regarding stocks is usually given more prominence than bonds. Still, there is a great deal of bond information to be found on many popular financial websites, from articles about foreign government bonds to step-by-step tutorials covering US government savings bonds.
Try:  The Motley Fool is a terrific resource for easy-to-understand bond information for the new investor. Financial giant Morningstar offers a full tutorial on government bonds, complete with a follow-up quiz. Investopedia also provides a complete "Bonds Basics" tutorial for beginners.

Look for information on government bonds at websites geared toward your demographic

Some of the best advice you may discover on buying treasury bonds could just be found on a parenting website. Often, a website geared toward a specific demographic will tailor its articles and advice for its audience, which could result in a better investment match for you.
Try:  AARP maintains an entire section of financial planning resources, with an excellent article explaining bonds. As with many women-focused websites, iVillage doles out money advice, including an article on buying bonds.

Focus on US government savings bonds and treasury bonds

The two most well-known government bonds are the US savings bond and treasury bonds. These can be easily purchased on the Internet and are often focused on in bond articles. These are the most commonly purchased bonds and are great for beginning investors.
Try:  The SEC (Securities Exchange Commission) website has a concise summary of saving bond types. A more thorough explanation of US savings bonds can be found on the Investment FAQ website. Finally, the website not to miss is TreasuryDirect, where you can not only learn about treasury and savings bonds, but also buy them.

• Next time you're trying to come up with a gift for the person who has everything, consider US government savings bonds. Children may not find them as exciting as toys, but an adult may very well appreciate the promise of extra funds.