If stocks are like owning a piece of a business, bonds are like being the bank. When you buy a bond, you are lending your money to a company or a government for a set amount of time. In return, they promise to pay you back your original money plus interest.

How a Bond Works

Think of a bond as a formal "I.O.U." with a reward.

1. The Loan: you give the borrower (a city, a company, or the U.S. government) a specific amount of money, like $100.

2. The Interest: The borrower pays you a set amount of interest (often called a "coupon") every six months or every year.

3. The Maturity: On a specific date in the future (the "maturity date"), the borrower gives you back your original $100.

The Three Main Types of Bonds

Review these with your parents to see which "level" of risk and reward fits your goals:

• U.S. Treasury Bonds: These are loans to the U.S. government. They are considered the safest investments in the world because they are backed by the "full faith and credit" of the United States.

• Municipal Bonds ("Munis"): These are loans to cities or states to build things like schools, highways, or parks. A huge benefit of these is that the interest you earn is often tax-free.

• Corporate Bonds: These are loans to companies (like Apple, Disney, or Nike). These are a bit riskier than government bonds, so the companies usually pay you a higher interest rate to make it worth your while.

Scroll down to the bottom of the page to learn more about each!

Essential Facts for You and Your Parents

To be fully informed, you and your parents should understand how the "Bond Math" works in 2026:

1. The Inverse Relationship

This is the most important rule of bonds: When interest rates go up, bond prices go down. If you have an old bond paying 3% interest, but new bonds are paying 5%, nobody will want to buy your 3% bond for its full price. If you plan to hold your bond until it matures, this doesn't matter, but it's important to know if you plan to sell early.

2. Predictable Income

Bonds are often called "Fixed-Income" investments because you know exactly how much you will get and when. This makes them great for specific goals, like having enough money for a car down payment in three years.

3. Managing Risk

Bonds usually don't move the same way as the stock market. When the stock market is "shaky" or going down, bonds often stay steady or even go up. This is why most investors keep some of their money in bonds—to act as a "safety net" for their portfolio.

4. Bond ETFs (The "Bundle" Shortcut)

Instead of buying one single bond, many investors buy a Bond ETF. This is a basket of hundreds of different bonds. It makes it easy to start small, as you can buy a "slice" of the basket for much less than a full $1,000 bond.