What are bonds? A bond is a loan from an investor to a company.
When we need a new car, we typically go to the bank and borrow money and purchase the car with a car loan. The same can be true for a company. They can go to a bank and borrow funds for a new factory or to expand a product line. Or, they can borrow money from individual investors. That’s where bonds come into play.
When a company, public or private, needs to borrow money, they have the option of issuing bonds for people to buy and invest in. Local, state, and the federal governments do the same and issue bonds.
Below is an excellent infographic from Mint.com which explains the ins and outs of bonds. It talks about what are bonds, how investors earn a return on their investments, and the like.
What Are Bonds?