Bonds and CDs
Diversify and generate potential income
- Cushion the impact of market swings on your portfolio
- Create a predictable and reliable source of interest income
- May help manage inflation and interest rate risk
- Access to over 50,000+ offerings from over 200 leading liquidity providers
US Treasury and new issue bond trades
commission per bond for all other trades (online secondary market2)
Why invest in bonds and fixed income?
One word: predictability. Most bonds and certificates of deposit (CDs) are designed to pay you steady income on a regular basis. They aim to protect the value of your original investment, and may help cushion the market’s ups and downs as part of a diversified portfolio.
By returning their full face value at maturity, bonds can help you protect your wealth
Adding bonds to your stock portfolio to help balance your portfolio during market swings3
Most bonds are designed to pay you a fixed amount of interest income at regular intervals
Tax free income
Some bonds, such as municipal bonds, offer tax breaks that can help you keep more of your money
Bonds and CDs for all types of investors
E*TRADE offers you direct access to more than 50,000 bonds and fixed income products from issuers of every kind—one of the largest selections available online today. They are accessible and versatile for both beginners and experts.
- U.S. Treasury - Treasury bonds, often referred to as “Treasuries”, are debt instruments issued by the US government (and as such are exempt from state and local taxes). Backed by the full faith and credit of the federal government, they are considered to be the safest of all investments.
- Agency - Agency bonds, commonly known as "agencies", are debt securities issued by US government sponsored agencies for public purposes, such as increasing home ownership or supporting small businesses. Because of their government affiliation, agency bonds are considered to be safe. However, each issuer has unique features as to potential risks and tax benefits.
- Municipal - Municipal bonds, or “munis”, are debt securities issued by state or local governments to finance public projects. Interest income is typically free from federal income taxes, and if held by an investor in the state of issuance, may be exempt from state and local taxes as well.
- Corporate - Many public and private companies issue bonds to help finance their ongoing operations. These bonds typically offer higher yields than municipal or U.S. Treasury securities, although they may entail a greater risk of default. Because the interest they pay is fully taxable, corporates may be a sound choice for IRAs or other tax-deferred accounts.
- High-yield - Bonds with ratings below BBB are often referred to as “junk” bonds. These bonds typically provide higher yields than investment-grade bonds, but have a higher risk of default.
- Brokered CDs - Brokered certificates of deposit (“CDs”) are similar to bank CDs, with the added benefit that they can be bought and sold in the secondary market penalty-free. These securities are FDIC insured up to $250,000 per depositor, per insured bank, for each ownership category. Brokered CDs from multiple banks can be held in a brokerage account, increasing your total FDIC coverage.
Why trade bonds with E*TRADE?
We offer a virtually unparalleled combination of choice, value, and support for bond investors and traders of every level.
- One of the largest selection of bonds and CDs available online
- Commission-free US Treasury bond trades, and only $1 commission per bond for all other trades (online secondary market)
- Easy-to-use online bond tools backed by knowledgeable support from our Fixed Income Specialists4
Comprehensive Bond Resource Center
Our user-friendly tools and resources help you find bonds you want, and then put them to work in your diversified portfolio.
- Quickly zero in on bonds that match your investment objectives with our basic and advanced screeners
- Get free independent bond research and education, plus view the latest bonds yields and market news
- Use our intuitive Bond Ladder Builder to help manage interest rate risk and generate a consistent stream of income
Support from Fixed Income Specialists
Get personalized investing help from experienced professionals who know the bond market inside and out.
- Unbiased bond investing guidance, including specific buy/sell recommendations based on your objectives
- Get in-depth Fixed Income Portfolio Evaluations of any current bond holdings at E*TRADE and other firms
- Help designing a bond ladder to potentially manage interest rate risk in both rising and falling environments
Frequently asked questions about bonds
What are bonds?
Think of a bond as a loan where you (the investor) are the lender. In exchange for the use of your money, the borrower—typically a corporation or governmental entity—promises to pay you a fixed amount of interest at regular intervals. The borrower further agrees to repay the amount borrowed to you at a specified date in the future.
How are bond prices and interest rates related?
Bond prices and interest rates have what’s called an inverse relationship. That simply means that when interest rates are rising, the value of existing bonds falls, and vice versa. Why, you may ask? Let’s look at an example. Say that you own a bond currently paying 3%. Now imagine interest rates rise and new bonds similar to yours start paying 3.5%. Your bond becomes less attractive because investors will prefer the new, higher-yielding bonds. So what if you want to sell your bond? You’ll have to ask for a price that’s lower than what you originally paid, so that the purchaser will in effect be receiving a 3.5% yield. Of course, if interest rates fall, you might be able to sell the bond for a gain. One common way to manage the risk of rising interest rates is through a bond ladder (see question below)
What is a bond ladder?
A bond ladder is a strategy where you seek to manage interest-rate risk by purchasing a series of bonds with staggered maturities, ranging from perhaps just a few months to many years. If interest rates rise, you can invest the principal from the maturing short-term bonds in new, higher-yielding bonds. If rates fall, you’ll continue to enjoy the high yields of your longer-term bonds. In either case, you’ll be earning income on your entire bond portfolio all the while.
What are new issue and secondary market bonds?
You can think of new issue bonds like stocks in an initial public offering. It’s the first time those particular bonds are available for purchase by the general public. Secondary market bonds are previously owned bonds that are being sold on an exchange by one investor to another.
What does a bond’s credit rating mean?
A bond’s credit rating is the likelihood that the issuer will have the financial wherewithal to make interest payments and return the principal as promised. Bonds are rated by firms such as S&P and Moody’s on a scale that ranges from prime investment-grade on the high end to extremely speculative (or even in default) on the lower end. Generally speaking, bonds with lower credit ratings must pay higher yields as incentive for investors to assume the greater risk of purchasing them.
What are the risks in investing in bonds?
Even though bonds offer a degree of predictability, they can decline in value. For example, the bond’s issuer may experience financial difficulties and become unable to make interest payments or repay the principal amount as promised. Also, rising interest rates can cause bond prices to fall. If you needed to sell your bonds prior to maturity in such a scenario, you could receive back less than you paid.
Learn more about bonds
Our knowledge section has info to get you up to speed and keep you there.5