You can buy corporate bonds through a broker, directly from the issuer, or through a bond fund, 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. You log in, search for the bond by company name or ticker, and place an order like you would for a stock. The broker finds a seller in the secondary market (where existing bonds trade) and executes the trade. This is the fastest route for most people because brokers have access to thousands of bonds and handle all the settlement details.
If you want to hold a bond from issue until maturity and you have at least $5,000 to $10,000 to invest (the typical minimum), you can sometimes buy directly from the issuer through a prospectus or offering document. This bypasses the broker's commission but requires you to contact the company's investor relations department or a financial advisor who can access the primary market. Direct purchases are less common for individual investors because most companies market new bond offerings to institutional buyers first.
A third option is a bond fund or exchange-traded fund (ETF) that holds corporate bonds. You buy shares of the fund through any broker, and the fund manager handles the actual bond purchases and management. This works well if you have less than $5,000 to invest or want diversification across many bonds without picking individual ones yourself.
Key Takeaways
- Most individual investors buy corporate bonds through a brokerage account by searching for the bond and placing an order in the secondary market.
- Brokers charge a markup or commission on bond trades, which varies by firm and bond type, so comparing costs across brokers matters if you trade frequently.
- Direct purchases from the issuer are possible but require contacting the company or working with a financial advisor, and typically require a minimum investment of $5,000 to $10,000.
- Bond funds and ETFs let you own corporate bonds with a smaller initial investment and automatic diversification, though they charge ongoing management fees.
- The secondary market (where existing bonds trade) has far more liquidity than the primary market (new issues), so you will find more bonds to choose from through a broker.
Buying through a brokerage account
A brokerage account is the most straightforward way to buy corporate bonds. You open an account with a broker — firms like Fidelity, Charles Schwab, E*TRADE, or Interactive Brokers all offer bond trading — and deposit cash. Once the cash settles, you can search their bond inventory by company name, ticker symbol, or bond characteristics like maturity date and coupon rate.
When you place an order, the broker searches the secondary market for sellers. The bond may be held by another investor, a dealer, or the broker's own inventory. The broker executes the trade and settles it, meaning the bond is transferred to your account and the seller receives payment. Settlement typically takes one to three business days. You will see the broker's cost built into the price you pay — this is usually a markup rather than a stated commission, so the exact cost is not always transparent.
Brokers vary in how many bonds they have available and how much they charge. Some brokers cater to active traders and offer lower markups; others focus on buy-and-hold investors. If you plan to hold a bond to maturity, the markup matters less because you pay it only once. If you trade frequently, comparing markups across brokers can save money. Ask your broker directly what the markup is on a specific bond before you buy.
Buying directly from the issuer
When a company issues new corporate bonds, it sells them first to institutional investors and large buyers. Individual investors can sometimes buy directly from the issuer, but this requires initiative and usually a minimum investment of $5,000 to $25,000 depending on the company.
To buy directly, contact the company's investor relations department or ask a financial advisor who has access to primary market offerings. The company will send you a prospectus — a legal document that describes the bond's terms, the company's financial condition, and the risks. You review it, decide whether to buy, and submit your order. There is no broker markup because you are buying straight from the source, but you may pay a small administrative fee.
Direct purchases make sense if you have a large sum to invest, want to avoid broker markups, and plan to hold the bond until it matures. They are less practical if you want to sell before maturity, because you would then have to sell in the secondary market through a broker anyway. Most individual investors skip this route because brokers offer more bonds, faster execution, and the convenience of one account for all investments.
Buying through bond funds and ETFs
A corporate bond fund or ETF pools money from many investors and uses it to buy a portfolio of bonds. When you buy shares of the fund, you own a small piece of that entire portfolio. This approach works well if you have less than $5,000 to invest, want when ready diversification across dozens or hundreds of bonds, or prefer not to research and pick individual bonds yourself.
Bond funds come in two main types. An actively managed fund has a manager who picks which bonds to buy and sell, trying to beat a benchmark. An index fund or ETF tracks a specific bond index — for example, the Bloomberg U.S. Corporate Bond Index — and straightforward holds the bonds in that index. Index funds typically charge lower fees (often 0.05% to 0.20% per year) than actively managed funds (often 0.40% to 1.00% per year).
The trade-off is that you do not own specific bonds; you own shares of a fund that owns bonds. If you need to sell your shares before the bonds mature, the share price fluctuates based on interest rates and credit conditions. You also pay ongoing management fees whether the fund makes money or loses it. For long-term investors who want simplicity and diversification, this is often the best choice. For investors who want to hold specific bonds to maturity and know exactly what they own, individual bonds through a broker are better.
Understanding broker markups and costs
When you buy a corporate bond through a broker, you do not see a separate commission line item like you might with a stock trade. Instead, the broker adds a markup to the bond's price. This markup is the broker's profit and typically ranges from 0.5% to 2% of the bond's value, though it can be higher or lower depending on the bond type and the broker.
A bond trading at $1,000 with a 1% markup costs you $1,010. You pay this markup only once, at purchase. If you hold the bond to maturity, the markup is a one-time cost spread across the years you hold it. If you sell the bond before maturity, you pay another markup when you sell — this time to the buyer's broker, not to your own.
Some brokers disclose markups upfront; others do not. Before you buy, ask your broker what the markup is on the specific bond you are interested in. If they will not tell you, ask what the "all-in price" is — that is, the total price you will pay including all costs. Comparing this price across brokers can reveal significant differences, especially on less common bonds.
The secondary market versus the primary market
The primary market is where new bonds are issued. When a company borrows money by issuing bonds for the first time, those bonds are sold in the primary market. Prices are set by the company and its underwriters, and the offering is usually marketed to large institutional investors first.
The secondary market is where existing bonds trade between investors. Once a bond is issued, it can be bought and sold many times over. The secondary market has far more liquidity — meaning more bonds available to buy and more buyers ready to purchase — than the primary market. This is where most individual investors buy bonds through brokers.
Secondary market prices fluctuate based on interest rates, the company's credit rating, and overall market conditions. A bond issued at $1,000 might trade at $950 or $1,050 depending on these factors. When you buy in the secondary market, you are buying from another investor, not from the company. The broker acts as an intermediary and takes a markup for facilitating the trade.
Comparing your options: broker, direct, or fund
| Route | Minimum Investment | Number of Bonds Available | Costs | Best For |
|---|---|---|---|---|
| Brokerage account | Often $100–$1,000 per bond | Thousands | Broker markup (0.5%–2%) | Investors who want to pick specific bonds and hold to maturity |
| Direct from issuer | $5,000–$25,000 | Only new issues from that company | Small admin fee or none | Large investors buying new issues and holding to maturity |
| Bond fund or ETF | $100–$500 (price of one share) | Hundreds or thousands (via the fund) | Annual management fee (0.05%–1.00%) | Investors with small amounts or those who want diversification without picking bonds |
Frequently Asked Questions
Can I buy corporate bonds through my bank?
Many banks offer bond trading through their brokerage services, though some only offer it to customers with large accounts. Call your bank and ask whether they trade corporate bonds and what their markups are. If they do not, you can open a brokerage account at a dedicated broker instead.
What is the minimum amount I need to invest in a corporate bond?
Most corporate bonds have a face value of $1,000, and brokers typically require you to buy at least one bond. Some brokers allow smaller purchases or fractional shares, especially for bond funds. Check with your broker about their specific minimums.
Do I pay taxes on corporate bond interest?
Yes. Interest from corporate bonds is taxed as ordinary income at your federal tax rate, plus any state and local income tax. This is different from Treasury bonds, where interest is exempt from state and local tax. Keep records of all interest payments for tax filing.
Can I sell a corporate bond before it matures?
Yes, you can sell any bond in the secondary market through a broker at any time. The price you receive depends on current interest rates and the company's credit rating — you may get more or less than you paid. You will pay a broker markup on the sale as well.
What happens if the company defaults on a corporate bond?
If a company cannot pay interest or repay the principal, it defaults. Bondholders have a claim on the company's assets ahead of stockholders, but you may not recover your full investment. This is why credit rating and the company's financial health matter when choosing which bonds to buy.