You can buy corporate bonds through a brokerage account, directly from some companies, or through bond funds

Corporate bonds are debt issued by companies, and you buy them the same way you buy stocks — through a brokerage firm. You open an account, fund it, search for the bond you want, and place an order. The bond sits in your account until it matures or you sell it. Some large companies also sell bonds directly to investors through their websites, though this is less common. If you want exposure to many bonds at once without picking individual ones, you can buy a bond mutual fund or exchange-traded fund (ETF) instead.

The main difference between buying bonds and stocks is that bonds have a maturity date — the date the company pays you back the full amount you lent them. Until then, you receive interest payments, usually twice a year. You can sell a bond before maturity if you need the money, but the price you get depends on whether interest rates have risen or fallen since you bought it.

Key Takeaways

  • You need a brokerage account to buy individual corporate bonds, just as you would to buy stocks.
  • Corporate bonds pay interest twice a year and return your principal on a set maturity date, typically between 2 and 30 years from purchase.
  • Bond prices move in the opposite direction of interest rates — if rates rise after you buy, the bond's market value falls, and vice versa.
  • Bond funds and ETFs let you own many bonds at once without having to research and pick individual bonds yourself.
  • You can buy bonds from the secondary market (where existing bonds trade) or, rarely, directly from a company issuing new bonds.

Opening a brokerage account to buy bonds

Any brokerage that handles stocks also handles bonds. Major firms include Fidelity, Charles Schwab, E*TRADE, TD Ameritrade, and Vanguard. You can also use smaller brokers or your bank if it offers brokerage services. The account setup is the same as for stocks: you provide your name, address, Social Security number, and employment information, and you link a bank account to fund the brokerage account.

Most brokers do not charge a commission to buy or sell bonds, though some charge a small markup (a few dollars per bond) that is built into the price you see. Ask your broker about their bond pricing before you open an account if cost is a major concern. Once your account is open and funded, you can search for bonds in the broker's bond section, which is usually separate from the stock trading area.

Finding and understanding bond listings

When you search for a corporate bond on your broker's platform, you will see a list of bonds issued by that company. Each listing shows the coupon rate (the interest rate the bond pays), the maturity date, the current price, and the yield to maturity (the total return you would get if you held the bond until it matures). The price is shown as a percentage of the bond's face value — a price of 102 means you pay 102% of face value, or $1,020 for a $1,000 bond.

The yield to maturity is the most important number because it tells you the actual return you will earn, accounting for the price you pay today and the interest payments you will receive. If you buy a bond at a discount (below face value), your yield to maturity is higher than the coupon rate. If you buy at a premium (above face value), your yield to maturity is lower. Most brokers let you sort by yield, maturity date, or credit rating so you can narrow down your choices.

Placing an order and what happens next

Once you have found a bond you want, you place an order just as you would for a stock. You specify how many bonds you want to buy (bonds are usually sold in increments of $1,000 face value, so you might buy 5 bonds for $5,000 face value). You can place a market order, which executes at the current price, or a limit order, which only executes if the price drops to a level you specify.

After your order fills, the bond appears in your account. You will receive interest payments on the bond's coupon dates — usually twice a year — directly into your account. The bond will mature on its maturity date, at which point the company pays you the face value ($1,000 per bond) and the bond disappears from your account. If you want to sell before maturity, you can place a sell order anytime the market is open, just as you would with a stock.

The difference between buying new bonds and existing bonds

Most bonds you buy through a broker are secondary market bonds — bonds that were issued in the past and are now trading between investors. These bonds have a history of price data and trading volume, which makes them easier to research. The price you pay reflects what other investors are willing to pay right now.

Occasionally, you may see a new bond offering from a company. These are bonds the company is issuing for the first time, and they are usually offered at face value ($1,000 per bond). New offerings sometimes have lower fees and may be easier to buy in round lots, but they have no trading history. Your broker will notify you if a new bond offering is available, or you can check the company's investor relations website. Some companies allow you to buy new bonds directly from them without going through a broker, though this is rare and usually limited to large purchases.

Using bond funds if you do not want to pick individual bonds

If researching individual bonds feels overwhelming, a bond mutual fund or ETF holds dozens or hundreds of bonds and lets you own a slice of all of them with a single purchase. You buy shares of the fund just as you would buy stock shares. The fund manager handles all the bond selection and trading, and you receive distributions (usually monthly or quarterly) that represent your share of the interest the fund collects.

Bond funds come in many varieties: some hold only investment-grade corporate bonds (bonds with lower default risk), some hold high-yield bonds (riskier bonds that pay more interest), and some hold a mix. ETFs tend to have lower fees than mutual funds, but mutual funds sometimes offer more specialized strategies. The trade-off is that you give up control over which specific bonds you own, but you also avoid the work of managing individual bonds and deciding when to sell them.

Understanding the risks of bond ownership

The main risk is interest rate risk. If interest rates rise after you buy a bond, the bond's market value falls because new bonds will pay higher interest. If you need to sell before maturity, you will have to sell at a discount. The longer the bond's maturity, the bigger this risk. A 30-year bond will lose much more value if rates rise than a 2-year bond will.

The second risk is credit risk — the risk that the company will not pay the interest or principal you are owed. Bonds from financially stable companies (rated investment-grade by credit rating agencies) carry low credit risk. Bonds from weaker companies (high-yield or "junk" bonds) carry higher credit risk but pay more interest to compensate. You can check a bond's credit rating on your broker's platform or on the rating agencies' websites (Moody's, Standard & Poor's, Fitch).

Frequently Asked Questions

What is the minimum amount I need to buy a corporate bond?

Most corporate bonds have a face value of $1,000, so that is the minimum for a single bond. Some brokers allow you to buy bonds in smaller increments through bond funds or fractional shares, but for individual bonds, $1,000 is standard. If you want to diversify across multiple bonds, you would need several thousand dollars.

Can I lose money on a corporate bond?

Yes, in two ways. If you sell before maturity and interest rates have risen, you will sell at a loss. If the company defaults (fails to pay interest or principal), you may lose some or all of your investment. Investment-grade bonds have low default risk, but it is not zero. If you hold the bond until maturity and the company does not default, you will get your full principal back regardless of interest rate changes.

How often do I get paid interest on a corporate bond?

Most corporate bonds pay interest twice a year on set dates (called coupon dates). Some pay quarterly or annually, but semiannual is standard. The interest amount is fixed when you buy the bond and does not change, even if interest rates in the economy rise or fall.

Should I buy individual bonds or a bond fund?

Individual bonds are better if you want predictable income, know exactly when you will get your principal back, and have enough money to diversify across several bonds. Bond funds are better if you want simplicity, lower minimum investment, or professional management. Many investors use both — individual bonds for core holdings and funds for diversification.

What happens to my bond if the company is bought by another company?

Usually, the acquiring company takes over the bond and continues making payments on the original terms. Sometimes the acquiring company may redeem (pay off) the bond early, which means you get your principal back sooner than expected. The bond's terms should specify what happens in a merger or acquisition, so check the prospectus if you are concerned.