Why You Should Consider a Fixed Rate Bond

Many people today are turning to investments to help preserve their money against inflation using a fixed rate bond. Here are a few things to consider.

When looking for a chance to invest money, you really need to consider whether the investment is a fixed rate bond or a floating rate bond. The difference can be substantial in the end. A fixed rate can often bring security to the investor, but doesn’t necessarily mean more money. In this case, a fixed rate on a bond means that the amount of interest doesn’t change with inflation or other interest changing events. With a floating bond, the interest rate has a tendency to change from time to time.

There are a few benefits to having a fixed bond instead of a floating rate bond. The interest is often announced in the months of May and November, letting you know exactly what to expect during this six month period. The interest rate that is announced is applied to every bond that has a fixed rate. Once the investment is made on this type of bond, it will continue to draw that amount for the life of the bond without any exceptions.

The interest is usually determined by one single of resource. The Secretary of the Treasury is usually the person that sets the interest rates on all bonds, but in some cases the Secretary can designate someone else that specializes in the area of bonds to set the interest rate as well. The bond will never be less than 0.00% but does not come with a guaranteed minimum rate.

Although fixed bonds are usually the safest way to invest your money, there is a downside. Sometimes a floating rate bond will rise in value, becoming more valuable throughout the life of the bond. A bond that is fixed will not reflect this increase in interest. A fixed bond will keep the same interest rate regardless of what happens to the economy and the interest of floating bonds.

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