Bonds (Finance)

money · investing · loans · how finance works

A bond is an IOU. When you buy a bond, you're lending money to a company or government. They promise to pay you back the original amount plus interest, just like borrowing lunch money from a friend and paying them back later with a snack.

You earn interest. The lender gets paid extra money called interest over time. This interest is usually paid at regular times, like every six months or once a year, giving you a steady stream of money.

There's a due date. Every bond has a maturity date, that's when the borrower must pay back the full amount they owe. It's like a deadline for returning that borrowed lunch money.

Governments and companies use them. Governments sell bonds to pay for roads, schools, and other projects. Companies sell bonds to get money for building factories or expanding their business.

Different types exist. Not all bonds work the same way. Some pay interest monthly, others yearly, and some have different rules, kind of like how different people might have different deals for lending you money.