Fixed Rate Bonds Made Simple: Pros & Cons Explained
A fixed rate bond is a type of investment where you lend money to a government or company for a set period, and in return, you receive regular interest payments (called “coupon payments”) at a fixed interest rate until the bond matures. At maturity, you also get back the original amount you invested (the “principal”). Think of it like locking in a guaranteed savings deal—steady interest, predictable returns. Pros of Fixed Rate Bonds Predictable income : Regular interest payments at the same rate. Stability : Protected from interest rate cuts since your coupon doesn’t change. Safe (if issuer is reliable) : Government and high-rated corporate bonds carry lower risk than stocks. Diversification : Adds balance to a portfolio by reducing reliance on volatile assets. Capital protection : Principal is returned at maturity (unless issuer defaults). Cons of Fixed Rate Bonds Interest rate risk : If market rates rise, your fixed rate becomes less attractiv...