What are Government Bonds?

Government bonds are certified reverse loans made from the US Federal Treasury to the bond purchaser.  A bond functions as a reverse loan because essentially that is exactly what it achieves.  A bond is a set amount, typically between $1,000 and $5,000 US Dollars, issued as a paper contract to a buyer.  The buyer gives the government the amount of money stated on the Treasury Bond and in return the US Treasurer, in this case the bond issuer, agrees to pay back the face value amount of the bond.  In addition, and similar to any loan, US government bonds agree to pay annual interest payments on the amount borrowed to the purchaser.  So when you buy a Treasury bond or the shorter term Treasury notes, you are essentially loaning the US Treasury money with the promise not only of interest payments but the return of the principal when the Treasury bonds mature.  Purchasers of Treasury Notes and Treasury bonds can be ordinary investors, banks, and foreign governments.

Benefits Of Government Bonds

Government bonds are extremely beneficial to both the consumer purchasing them as well as the Federal Government.  Since World War 1 the US Government has recognized a need to borrow money in order to maintain the economy.  The use of government bonds is an effective tool which does just this.  While the government is able to keep the economy moving and pay its bills, government bonds are also good for the investors who purchase them.  A government bond is without comparison the most secure investment one can make.  Any stock purchase or corporate comes with an inherent risk: the company may fail.  With government bonds that “company” is now the United States of America.  Chances are, you will get your investment back.

Related posts:

1. What Are Treasury Bonds?
2. What Are Interest Bonds?
3. What Is A T-bill?
4. What Is The Interest Rate On A Bond?
5. What Are Tax Free Bonds?