You can buy corporate bonds through a broker, directly from the issuer, or through bond funds, depending on the size of your purchase and how much trading you want to do
Most individual investors buy corporate bonds through a brokerage account — the same place they hold stocks. Your broker connects you to the secondary market, where existing bonds trade between investors. You can also buy newly issued bonds directly from the company or through a bank underwriting the offering. A third route is a bond mutual fund or exchange-traded fund (ETF), which pools money from many investors to buy a diversified collection of bonds.
Each route has different minimums, costs, and access to inventory. A brokerage account gives you the most choice but requires you to understand bond pricing. Direct purchases from issuers sometimes have lower minimums but fewer bonds to choose from. Bond funds handle the selection and trading for you but charge an annual fee.
Key Takeaways
- Brokerages like Fidelity, Charles Schwab, and E*TRADE let you search and buy individual corporate bonds on the secondary market, with minimums typically starting at $1,000 per bond.
- New corporate bond offerings can be purchased directly through the issuing company or a bank underwriting the deal, often with no trading fees but limited selection.
- Bond mutual funds and ETFs let you own a piece of many corporate bonds with a single purchase, though you pay an annual expense ratio.
- Secondary market prices fluctuate based on interest rates and credit risk, so the price you pay today may be higher or lower than the bond's face value.
- Brokerage accounts show you the bid-ask spread — the difference between what you pay and what a seller receives — which varies by bond liquidity.
Buying through a brokerage account
A brokerage account is the most common way individual investors buy corporate bonds. You open an account with a firm like Fidelity, Charles Schwab, E*TRADE, or Interactive Brokers, fund it with cash, and then search for bonds to buy. The bonds you find are already issued and trading on the secondary market — meaning they were sold by the company months or years ago and are now owned by other investors who are selling them.
Most brokerages require a minimum purchase of one bond, which typically has a face value of $1,000. Some firms allow smaller purchases through bond funds or fractional ownership, but individual bonds usually start at $1,000. When you place an order, your broker finds a seller and executes the trade. You will see a bid-ask spread — the difference between what buyers are willing to pay and what sellers are asking. This spread is your cost of trading and varies depending on how actively the bond trades. Highly traded corporate bonds have narrow spreads; less common bonds have wider ones.
Brokerages do not charge a commission on most bond trades, but the spread is built into the price you see. Some firms offer research tools and bond screeners that let you filter by rating, maturity, yield, and issuer. This route gives you the most control and the widest selection, but you need to understand how bond prices move with interest rates and how to read a bond's credit rating.
Buying newly issued corporate bonds
When a company issues new bonds, they are sold through an underwriting bank or syndicate of banks. You can buy these bonds directly during the offering period, which typically lasts a few days to a week. New issues often have no trading fees and are priced at par (face value), so you know exactly what you are paying.
To buy a new issue, you can contact the issuing company's investor relations department, call a bank that is underwriting the deal, or ask your broker if they have access to the offering. Many brokerages receive allocations of new corporate bonds and can place orders for you. The minimum is usually $1,000 per bond, though some offerings accept smaller amounts.
The advantage of buying at issuance is simplicity — no bid-ask spread and no guessing about fair value. The disadvantage is limited selection. You can only buy bonds that are being issued right now, and you have no choice in maturity date or coupon rate. Once the offering closes, you cannot buy that bond at par anymore; if you want it later, you must buy it on the secondary market at whatever price it is trading for.
Buying through bond mutual funds and ETFs
A bond mutual fund or ETF pools money from many investors and uses it to buy a portfolio of corporate bonds. You buy shares of the fund, not individual bonds. This approach is simpler if you want diversification without researching individual bonds or managing a portfolio yourself.
Mutual funds are actively managed — a fund manager selects which bonds to buy and sell. ETFs are usually passively managed and track an index of corporate bonds. Both charge an annual expense ratio, which is a percentage of your investment taken out each year to cover management and operating costs. Corporate bond fund expense ratios typically range from 0.05% to 0.50% per year, depending on the fund type and manager. You can buy mutual fund shares through any brokerage, and most have no minimum or a minimum of $1,000 to $3,000.
The trade-off is that you give up control over which bonds you own and you pay an ongoing fee. But you get when ready diversification, professional management, and the ability to buy in with a small amount of money. If you sell the fund before holding it long, you may also face a short-term trading fee or redemption charge, depending on the fund's rules.
Understanding bond pricing and the secondary market
When you buy a bond on the secondary market through a broker, you are buying from another investor, not from the company. The price you pay depends on current interest rates, the bond's credit rating, and how much time is left until it matures. If interest rates have risen since the bond was issued, its price will be lower than face value. If rates have fallen, the price will be higher.
The bid-ask spread is the cost of this transaction. The bid is what a buyer will pay; the ask is what a seller wants. Your broker buys at the ask price and sells at the bid price, and the difference is their compensation. For a $1,000 bond, a spread might be $2 to $5 on either side, or it could be $20 or more if the bond is rarely traded. You will see both the spread and the yield-to-maturity (the annual return you will earn if you hold the bond to maturity) when you place an order.
Liquidity varies widely among corporate bonds. Bonds issued by large, well-known companies trade frequently and have tight spreads. Bonds from smaller companies or with unusual terms may trade rarely, making them harder to buy or sell and more expensive to trade. Before buying a bond, check how often it trades and what the current spread is.
Comparing costs across purchase routes
| Route | Minimum Purchase | Upfront Cost | Ongoing Cost | Selection |
|---|---|---|---|---|
| Brokerage (secondary market) | $1,000 per bond | Bid-ask spread (typically $2–$20 per bond) | None | Thousands of bonds |
| New issue (direct or through broker) | $1,000 per bond | None (priced at par) | None | Limited to current offerings |
| Bond mutual fund | $1,000–$3,000 | None | 0.05%–0.50% annually | Diversified portfolio |
| Bond ETF | Price of one share (varies) | Bid-ask spread on ETF shares | 0.05%–0.30% annually | Diversified portfolio |
The cheapest route for a single bond purchase is usually a new issue, because there is no spread. For ongoing purchases or if you want to build a diversified portfolio, a low-cost bond ETF often costs less than buying individual bonds on the secondary market, where spreads add up. Bond mutual funds are more expensive than ETFs due to higher expense ratios, but some investors prefer the active management.
What to look for when choosing where to buy
Start by deciding whether you want to own individual bonds or a diversified fund. If you want individual bonds, compare brokerages on their bond inventory, research tools, and spreads. Fidelity and Charles Schwab have large bond inventories and good research platforms. Interactive Brokers caters to active traders and has lower spreads on some bonds. Smaller brokerages may have limited bond selection.
If you choose a bond fund, compare expense ratios and the fund's strategy. A fund tracking the Bloomberg U.S. Corporate Bond Index will have lower costs and broader diversification than a fund focused on high-yield or intermediate-term bonds. Read the fund's prospectus to understand what types of bonds it holds and how often it trades.
Consider also how much time you want to spend managing your investment. Individual bonds require you to monitor credit ratings, interest rate risk, and maturity dates. Funds handle this for you but charge a fee. If you are buying your first corporate bonds, a low-cost bond ETF is often the simplest starting point.
Frequently Asked Questions
Do I need a brokerage account to buy corporate bonds?
For most individual investors, yes. A brokerage account gives you access to the secondary market where most corporate bonds trade. You can also buy newly issued bonds directly through a bank underwriting the deal, but selection is limited. Bond funds do not require a separate account — you can buy them through any brokerage or directly from the fund company.
What is the minimum amount I need to invest in corporate bonds?
Individual bonds typically have a $1,000 minimum. Bond mutual funds usually have a $1,000 to $3,000 minimum. Bond ETFs can be bought one share at a time, so the minimum is the price of a single share, which varies. Some brokerages offer fractional bond ownership, which lowers the minimum, but this is not standard.
Why do bond prices change if I am holding them to maturity?
Bond prices fluctuate based on interest rates and credit risk, even if you plan to hold until maturity. If you sell before maturity, you will receive the current market price, not the face value. If you hold to maturity, you will receive the full face value regardless of what happened to the price in between. But if the company's credit rating drops, the bond's value falls, and you lose money if you sell early.
Can I buy corporate bonds through my retirement account?
Yes. Most IRAs, 401(k)s, and other retirement accounts allow you to hold individual bonds or bond funds. Some employer 401(k) plans offer a limited selection of bond funds; others let you direct your own investments through a brokerage window. Check your plan's rules or contact your plan administrator to see what bond options are available.
What is the difference between a bond fund and buying individual bonds?
Individual bonds give you a fixed payment schedule and return of principal at maturity, assuming the company does not default. Bond funds fluctuate in value daily and have no maturity date — you own shares that rise and fall with the market. Funds offer diversification and professional management but charge an annual fee. Individual bonds require more research but have no ongoing fees.