Costs Associated With Bonds
“To get the highest yields when interest rates are
rising, choose shorter-term bonds. Conversely, switch to
long-term bonds when you believe that interest rates are
going to drop.”
- Nancy Lloyd, author of
Simple Money Solutions
Bonds are traded in the market just like stocks, and you
will need to pay a broker a commission whenever you buy or
sell a bond. There is, however, one exception. You may purchase
U.S. Treasury securities directly through the Treasury Direct
program of the Federal Reserve System, in which case you can
avoid dealing with a broker altogether and paying anything
other than the bond’s purchase price. For more information
on Treasury Direct, contact your nearest Federal Reserve Bank
branch or call the Bureau of Public Debt at (202) 874-4000.
Another way to purchase bonds is through bond funds. In many
cases, you can purchase them directly from the mutual fund
company and avoid a sales commission. However, bond funds
do charge an annual fee for maintenance and money management.
Check out the fund's expense ratio to ensure it’s not
prohibitively expensive--compared to historical returns--before
you buy.
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