You can buy corporate bonds through a brokerage account, directly from a bond dealer, or through a fund that holds them

Corporate bonds are sold through several channels, and which one you use depends on how much you want to invest, how much trading you plan to do, and whether you want to pick individual bonds or own them as part of a larger pool. Most individual investors use a brokerage account — the same place they might buy stocks — because it offers access to thousands of bonds and shows you the price you're paying. Some investors buy directly from bond dealers or through bond funds if they want a simpler approach or have very large amounts to invest.

The key difference between these routes is cost, selection, and how much work you do yourself. A brokerage account gives you the most control and usually the lowest fees for individual bonds. A bond fund or ETF means someone else picks the bonds and rebalances them, which costs more in annual fees but requires less from you. Direct purchases from dealers work best if you're buying a large amount and plan to hold it until maturity.

Key Takeaways

  • Brokerage accounts (through firms like Fidelity, Charles Schwab, or E*TRADE) let you search, compare, and buy individual corporate bonds with transparent pricing.
  • Bond funds and ETFs pool investor money to buy many bonds at once, spreading risk but charging annual management fees of 0.05% to 0.50% or more.
  • Direct purchases from bond dealers work for large institutional investors or individuals buying $100,000 or more, but are rarely practical for smaller amounts.
  • The secondary bond market (where existing bonds trade) is where most individual investors actually buy, not from the company issuing the bond.
  • Markups on individual bond trades can range from under 1% to 2% or more depending on the bond's liquidity and your broker's pricing.

Buying through a brokerage account

A brokerage account is the most common route for individual investors. You open an account at a firm like Fidelity, Charles Schwab, E*TRADE, or TD Ameritrade, deposit money, and then search their bond inventory. The account works the same way as buying stocks — you see the bond's price, yield, maturity date, and credit rating before you buy, and you can compare multiple bonds side by side.

When you buy a bond through a brokerage, you're almost always buying from the secondary market — meaning another investor is selling it to you, not the company that issued it. The brokerage makes money by adding a markup to the bond's price, typically 0.5% to 2% depending on how straightforward the bond is to trade. More actively traded bonds (like those from large, stable companies) have smaller markups. Less common bonds have larger ones because the brokerage has to work harder to find a seller.

The advantage of a brokerage is transparency and choice. You can see exactly what you're paying and hold the bond until maturity if you want, or sell it whenever you choose. The disadvantage is that you need to do the research yourself — picking which bonds to buy, checking credit ratings, and deciding how many different bonds to own to spread your risk.

Bond funds and exchange-traded funds (ETFs)

A bond fund pools money from many investors and uses it to buy a large collection of corporate bonds. The fund manager decides which bonds to buy and sells shares of the fund to you. You own a small piece of the entire portfolio, not individual bonds. ETFs work the same way but trade on a stock exchange like individual stocks, while mutual funds are priced once per day after the market closes.

The main advantage of a fund or ETF is simplicity and diversification. You get exposure to dozens or hundreds of bonds with a single purchase, so if one company defaults, it barely affects your return. You also don't have to research individual bonds or worry about selling them — the fund manager handles all of that. The cost is an annual fee, called an expense ratio, which typically ranges from 0.05% to 0.50% per year for corporate bond funds, though some charge more.

The disadvantage is that you can't hold the fund until maturity the way you can with an individual bond. If you need to sell before the fund's bonds mature, you'll get whatever price the market is willing to pay that day — which could be more or less than you paid. You also have less control over which specific bonds you own and when they're bought or sold.

Direct purchases from bond dealers

Large investors sometimes buy corporate bonds directly from dealers — the financial firms that make markets in bonds and hold inventory. This route is rarely practical for individual investors because dealers typically require minimum purchases of $100,000 to $1 million per bond, and they're set up to serve institutional clients like pension funds and insurance companies.

If you do buy directly from a dealer, you're buying a newly issued bond straight from the company (or the dealer acting on its behalf) rather than from the secondary market. The advantage is that you avoid the secondary market markup and can negotiate terms if you're buying a large amount. The disadvantage is that you need a relationship with the dealer, you have to do all your own research, and you're locked into holding the bond unless you can find a buyer on the secondary market later.

How to compare costs across different routes

The total cost of buying a corporate bond depends on which route you choose and which specific bond you buy. For an individual bond through a brokerage, the cost is the markup (usually hidden in the price you see) plus any trading commissions. Many brokerages charge no commission on bond trades, but some still do — check before you open an account.

For a bond fund or ETF, the cost is the annual expense ratio. If you buy a fund with a 0.20% expense ratio and hold it for 10 years, you're paying 2% of your investment in total fees (though the exact amount depends on how the fund performs). For a $10,000 investment, that's $20 per year. For a $100,000 investment, it's $200 per year.

To compare, calculate what you'd pay in markup on an individual bond versus what you'd pay in annual fees on a fund. If you're buying a bond with a 1% markup and holding it for five years, you're paying roughly 0.20% per year in markup costs. A fund with a 0.15% expense ratio would be cheaper over that period. But if you're holding the bond to maturity and never selling, the markup is a one-time cost, while fund fees compound every year.

What to look for when choosing a brokerage

If you decide to buy individual bonds through a brokerage, compare these features across firms: the size of their bond inventory (larger is better because you have more choices), whether they charge trading commissions (many don't anymore, but some still do), and how transparent their pricing is. Some brokerages show you the markup they're charging; others hide it in the price.

Check whether the brokerage offers tools to search and filter bonds by maturity date, credit rating, yield, and issuer. Fidelity and Charles Schwab both have strong bond-trading platforms with large inventories and clear pricing. Smaller brokerages may have fewer bonds available and higher markups because they have less trading volume.

Also ask about account minimums. Some brokerages require a minimum deposit to open an account, and some require a minimum per bond purchase (often $1,000 to $5,000). A few allow purchases of smaller amounts, but those are less common.

Understanding the secondary bond market

Most corporate bonds you buy as an individual investor are trading on the secondary market — they were issued months or years ago, and you're buying them from another investor through a dealer or brokerage. This is different from buying a newly issued bond, which you can sometimes do directly from the company or through a dealer.

The secondary market is less transparent than the stock market. Bond prices aren't displayed on a public ticker the way stock prices are. Instead, dealers quote prices to brokerages, and brokerages show those prices to you. The markup is built into the price you see, so you're not always aware of exactly how much the dealer is making on the trade. This is why using a brokerage with transparent pricing tools matters — they show you the markup separately so you know what you're paying.

Bonds that trade frequently (like those from Apple, Microsoft, or other large companies) have tighter spreads and smaller markups because there are many buyers and sellers. Bonds from smaller or less-known companies trade less often, so dealers charge larger markups to compensate for the extra work of finding a buyer or seller.

Frequently Asked Questions

Can I buy corporate bonds directly from the company?

Rarely. Most companies don't sell bonds directly to individual investors. Instead, they work with investment banks and dealers who handle the sale. You can sometimes buy newly issued bonds through a brokerage during the offering period, but after that, all trading happens on the secondary market through dealers and brokerages.

What's the minimum amount I need to invest in corporate bonds?

For individual bonds through a brokerage, the typical minimum is $1,000 to $5,000 per bond, though some brokerages allow smaller purchases. For bond funds and ETFs, minimums are usually $1 to $100 depending on the fund. Direct purchases from dealers typically require $100,000 or more.

Do I pay taxes on corporate bond interest?

Yes. Interest from corporate bonds is taxed as ordinary income at your federal tax rate, plus state and local income tax if your state taxes it. This is different from municipal bonds, where the interest is often tax-free. Keep records of all interest payments for tax filing.

What happens if I want to sell a corporate bond before it matures?

You can sell it on the secondary market through a brokerage, but you'll get whatever price the market is willing to pay that day. If interest rates have risen since you bought it, the bond's price will have fallen, and you'll take a loss. If rates have fallen, you'll make a gain. Bond funds and ETFs handle this selling automatically if you need to withdraw money.

Is it better to buy individual bonds or a bond fund?

Individual bonds are better if you want to hold until maturity, know which specific bonds you want to own, and have enough money to diversify across several bonds. Bond funds are better if you want simplicity, automatic diversification, and don't mind paying annual fees. Most individual investors find funds easier to manage.