Types of Fixed Income Securities

by Tom Streissguth ; Updated July 27, 2017
A close-up of a stack of U.S Treasury savings bonds.

Investors seeking a safe stream of regular income can invest in fixed-income securities. These investments return a regular rate of interest and guarantee a return of principal at maturity. Bonds and other fixed-income debt provide a less volatile investment than common stocks, although bonds may still fluctuate in price on public exchanges. Investors should always be aware of the relative safety of the bond, which is directly related to the financial condition of the issuing institution.

Treasuries

The U.S. government issues treasury bonds, bills and notes, which carry different maturities of up to 30 years and are considered one of the safest investments. The interest rate on these “treasuries” is low compared with bonds issued by corporations or smaller government entities. The federal government also offers savings bonds as well as Treasury Inflation Protected Securities. The return on TIPS is linked to the consumer price index, so that investors can be guaranteed a minimum real return on their money no matter the general inflation conditions.

Municipal Bonds

State, city and county governments offer municipal bonds to raise money for public projects and improvements, and to finance their ongoing operations. The interest on municipal bonds issued within a state is usually tax-free for that state’s residents. As in most public and corporate bonds, interest is paid semi-annually, and at the rate stated on the bond's coupon. At maturity, the entire principal amount of the bond is repaid to investors.

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Corporate Bonds

Public companies can issue corporate bonds to finance operations or expansion. These bonds are rated by agencies, including Moody’s and Standard & Poor’s, according to their safety and the company’s overall financial health. Companies with lower ratings generally must pay a higher rate of interest on bonds they issue. The bonds are traded among investors on public markets, and their value may rise and fall according to the company’s earnings and its future outlook.

Asset-Backed Securities

Asset-backed securities are bundles of assets, such as auto loans, mortgages or credit-card accounts, that generate a stream of regular income. These securities can also be rated and traded on public exchanges.

Preferred Stock

Preferred stock of individual companies also may guarantee a stream of income to the investor, with a coupon rate fixed by the company when the stock is issued. Regular interest is payable every quarter. If the company experiences financial trouble and goes into bankruptcy, preferred stockholders are placed before regular shareholders for the return of their investment.

About the Author

Founder/president of the innovative reference publisher The Archive LLC, Tom Streissguth has been a self-employed business owner, independent bookseller and freelance author in the school/library market. Holding a bachelor's degree from Yale, Streissguth has published more than 100 works of history, biography, current affairs and geography for young readers.

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