Where and how to buy corporate bonds

You buy corporate bonds through a broker — a financial firm licensed to trade securities. The most common route is opening an account with a brokerage firm (online brokers like Fidelity, Charles Schwab, or E*TRADE; traditional brokerages like Merrill Lynch; or your bank if it offers brokerage services). Once your account is open and funded, you search for bonds by ticker or issuer name, review the bond details, and place an order to buy.

The bond market itself is not a single exchange like the stock market. Most corporate bonds trade over-the-counter (OTC), meaning your broker connects you to a dealer who has that bond available. This means prices and availability vary by broker and by the moment you search — the same bond may have different prices at different firms, and some brokers may not carry every bond.

You can also buy corporate bonds directly from the issuer during a new offering, though this is less common for individual investors. When a corporation issues new bonds, it announces the offering through its investor relations department or a financial news service. Your broker can tell you whether they are participating in a specific offering.

Key Takeaways

  • You need a brokerage account to buy corporate bonds; most online brokers, traditional brokerages, and banks offer this service.
  • Corporate bonds trade over-the-counter, so the same bond may have different prices and availability depending on which broker you use.
  • Before you buy, you should review the bond's credit rating, maturity date, coupon rate, and the issuer's financial health.
  • Minimum purchase amounts vary by bond and broker, but many corporate bonds require $1,000 or $5,000 as a starting investment.
  • You can hold bonds until maturity and receive your principal back, or sell them before maturity at whatever the market price is at that time.

Opening a brokerage account

Start by choosing a broker. Compare what they charge for bond trades (some charge per-bond commissions, others charge flat fees, and some offer commission-free bond trading), what bonds they have available, and what research tools they provide. Most brokers let you open an account online in 10 to 15 minutes.

You will need to provide your name, address, Social Security number, employment information, and funding details (bank account or wire transfer information). The broker will ask you questions about your investment experience and financial situation — this is part of their legal obligation to understand who you are, not a barrier to opening the account.

Once your account is approved and funded, you can begin searching for bonds. Most brokers have a bond screener or search tool where you can filter by issuer name, maturity date, credit rating, or yield. Some brokers also provide bond research reports that include the issuer's financial statements and credit analysis.

Understanding bond details before you buy

Every corporate bond listing shows several pieces of information you should review. The coupon rate is the interest rate the bond pays — a 5% coupon on a $1,000 bond pays you $50 per year. The maturity date is when the issuer will repay your principal. The credit rating (from agencies like Moody's, S&P, or Fitch) tells you the risk that the issuer will default.

The yield shown in the listing is the return you will earn if you hold the bond to maturity and the issuer does not default. This is different from the coupon rate because it accounts for the price you are paying — if you buy a bond at a discount (below its face value), your yield will be higher than the coupon rate. If you buy at a premium (above face value), your yield will be lower.

You should also look at the issuer's financial statements and news. A bond from a company with strong cash flow and low debt is less risky than one from a company with declining revenue or high debt levels. Your broker's research tools often include credit analysis, or you can search the issuer's investor relations website or the SEC's EDGAR database for financial filings.

Placing an order and settlement

Once you have decided which bond to buy, you place an order through your broker's platform. You will specify the bond (by CUSIP number or issuer name), the quantity (usually in increments of $1,000), and whether you want a market order (buy at the best available price right now) or a limit order (buy only if the price drops to a level you set).

After you place the order, your broker sends it to a dealer who has that bond. The dealer may have it in inventory, or they may need to source it from another dealer. This can take anywhere from a few minutes to a few hours, depending on how actively the bond trades and market conditions.

Once the trade is executed, settlement happens on the trade date plus three business days (called T+3). This means the money leaves your account and the bond is credited to your account three business days after you buy it. During this time, the bond is in transit between the seller and your broker.

Minimum investment amounts and fees

Most corporate bonds have a minimum purchase of $1,000 (one bond), though some issuers set minimums at $5,000 or higher. Check your specific bond's details before you place an order — your broker will show the minimum when you search.

Broker fees for bond trades vary widely. Some brokers charge a commission per bond (typically $10 to $25 per bond), some charge a flat fee per transaction, and some offer commission-free bond trading but may add a markup to the bond price itself. Ask your broker what their fee structure is before you open an account, or compare their fee schedules on their website.

You may also encounter a bid-ask spread — the difference between what a dealer will pay you for a bond (the bid) and what they will charge you to buy it (the ask). This spread is built into the price your broker quotes you and is how dealers make money on bond trades. Spreads are wider for less-traded bonds and narrower for bonds that trade frequently.

Holding bonds or selling before maturity

If you hold a bond until its maturity date, the issuer will repay your principal in full (assuming they do not default) and you will have received all coupon payments along the way. This is the simplest path and requires no further action on your part after you buy.

If you need to sell a bond before maturity, you can do so through your broker at any time the bond market is open. The price you receive depends on what the bond is worth at that moment — if interest rates have risen since you bought it, the bond's price will have fallen, and you may sell at a loss. If interest rates have fallen, the bond's price will have risen, and you may sell at a gain.

Selling before maturity also involves the same bid-ask spread and potential broker fees as buying. The total cost of selling early — the spread plus any fees plus the potential price loss — is why many bond investors hold to maturity rather than trade actively.

Tax treatment of corporate bond income

The coupon payments you receive from a corporate bond are taxed as ordinary income at your federal tax rate in the year you receive them. If you sell a bond before maturity for more than you paid, the gain is taxed as a capital gain (long-term if you held it over a year, short-term if under a year). If you sell for less than you paid, you can claim a capital loss.

Unlike municipal bonds, corporate bond interest is not exempt from federal income tax. Some brokers and tax software will track your cost basis and gains or losses automatically, but you are responsible for reporting this income on your tax return. Keep records of what you paid for each bond, when you bought and sold it, and what you received in coupon payments.

Frequently Asked Questions

Can I buy corporate bonds directly from the company?

Most corporations do not sell bonds directly to individual investors. You must buy through a broker. However, during a new bond offering, your broker can help you participate if they are part of the underwriting syndicate. Ask your broker whether they are involved in offerings from companies you are interested in.

What is the difference between a market order and a limit order for bonds?

A market order tells your broker to buy the bond at whatever price is available right now. A limit order tells your broker to buy only if the price drops to a specific level you set. Limit orders may not fill if the price never reaches your target, but they protect you from overpaying if the bond price moves while your order is being processed.

Do I have to hold a corporate bond until maturity?

No. You can sell a bond at any time through your broker. The price you receive depends on current market conditions and interest rates. Selling early means you may gain or lose money compared to what you paid, and you will pay trading fees and spreads.

What happens if the company that issued the bond goes bankrupt?

Bondholders are creditors, not owners, so they have a claim on the company's assets ahead of stockholders. However, there is no may provide you will recover your full investment. The company's assets may not be enough to pay all creditors. This is why credit ratings and financial analysis matter — they help you assess the risk of default before you buy.

Can I buy bonds in a retirement account?

Yes. Most retirement accounts (401(k)s, IRAs, and others) allow you to hold corporate bonds. The tax treatment of the bond income depends on the account type — in a traditional IRA or 401(k), coupon payments are not taxed until you withdraw money; in a Roth IRA, they are not taxed at all. Ask your retirement account provider what bonds are available through their platform.