A bond is any interest-bearing or discounted government or corporate security that obligates the issuer to pay the bondholder a specified sum of money, usually at specific intervals, and to repay the principle amount of the loan at maturity. Bondholders have an IOU from the issuer, but no corporate ownership privileges, as stockholders do.

A secured bond is backed by collateral which may be sold by the bondholder to satisfy a claim if the bond's issuer fails to pay interest and principal when they are due. An unsecured bond or debenture is backed by the full faith and credit of the issuer, but not by any specific collateral.

• Corporate bonds are issued by corporations and are rated according to their quality. Corporate bonds typically pay higher interest rates than municipal or government bonds.
• Municipal bonds are issued by state, city and local municipalities. Municipal bond income is free from federal income taxes and may be exempt from state taxes when issued in the bondholder's state of residence.
• Convertible bonds are issued by corporations and can be converted to the company's stock at a prestated price.

Contact a Financial Consultant for expert guidance in selecting the right bonds for you. If you have a Discount Brokerage account, call 1-800-888-4700 to speak with customer service.

U.S. Bancorp Investments does not provide tax advice. Please see your personal tax advisor before making any tax-related decisions. Investment advice is not offered through discount brokerage accounts.

The characteristics of bonds typically purchased by individuals include coupon rate, credit quality of the issuer, call features, other pre-payment options, maturity date, and whether interest is taxable.