There are many different kinds of investments out there. You could invest your money into stocks and bonds or you could invest it into a friend’s business. When you invest money, you are lending your money to someone else in hopes of earning a profit. You could be earning interest, being paid part of the profits of a business, or get capital gains through trading.

Bonds are one of the most common types of a investments. Bonds are issued by corporations and governments. They are issued in order to get money for growing a business or running a government. A bond is a loan.

A bond is most often issued at $1,000. One bond will cost $1,000. If you buy savings bonds you can buy them in other denominations such as $25, $50, $100, etc. Savings bonds are common gifts for birthdays and graduations, so you might even have a few yourself.

You can earn interest from one or a combination of three basic ways. The first is through interest. You will always be paid some type of interest on a bond. IF you buy a bond of $1,000 at an interest rate of 4%, you will be paid $40 a year either annually or semiannually. Some bonds will wait the entire period and pay the principle payment and all the interest together.

The second way to earn money from a bond is through paying a discount or premium. Paying a premium is actually going to cost you money, but if you have a high interest rate, it shouldn’t be a big deal. For example, you could buy a $1,000 bond for $950. You will be repaid $1,000 at the end which would give you a $50 profit in addition to the interest earned.

The third way you can make money with a bond is by trading them. You can trade bonds just like you can trade stocks. Bonds may mature anywhere from 6 months to 30 years and in that time you can sell them to others or buy them. If you sell them for more than what you paid, you will have made a profit.

A corporation is selling bonds with a face value of $1,000 for $960 each. You buy 20 of these bonds. They have an interest rate of 5% and mature in 10 years. You pay $19,200 for $20,000 worth of bonds. Each year you will receive $1,000 in interest. When it matures you will be repaid $20,000. You will have made $10,000 in interest and $800 from the discount for a total of $10,800.

You could have sold any amount of these bonds before maturity if anyone was willing to pay for them. Bonds are better off for those closer to retirement. Unless you are planning to invest in junk bonds and do a lot of trading, you will not make as much as you would in the stock market.