How do u.s. government bonds work?
United States government bonds are one way that the government raises money. In exchange for a promise to pay the money back, with interest, the government receives money from individual investors, institutions, and foreign governments.DefinitionA U.S. government bond is a negotiable security that represents a loan made to the U.S. government, complete with a promise to pay interest and principal.Interest RateA U.S. government bond will pay a stated interest rate, listed as a percentage of the face value of the bond.Interest ScheduleGovernment bonds pay interest semi-annually, or twice per year.Maturity DateThe maturity date is the date on which the government pledges to return to the investor the face value of the bond, or $1,000 per bond.QualityU.S Government bonds are backed by the full faith and credit of the United States Government, and as such are considered the safest securities in the world.TaxesAll U.S. Government bonds pay federally tax-free interest.Source:investorwords.com
