Why buy bonds when CD rates are about the same.?

Question

I just could never understand the reasons brokers say to buy bonds. Aren't CDs just as good and less risky? I've never bought a bond, but instead by CDs and layer them so they mature at different times. Am I missing something?

Everyone's answers to date are so good and helpful. Thank you so much!

Answer 1

Certain bonds have tax advantages that cds do not have. Municiple bonds and U S treasury bonds. For example a 6 month U S t-bill pays about 5% interest currently which is very competitive with CDs, but is not subject to state and local income taxes. They also are very liquid and can be sold in the after market if the funds are needed in an emergency.

Answer 2

2 obvious reasons:

1. Bonds can appreciate in value when interest rates go down. People who bought bonds around 1980 made a killing this way. On the other hand they can lose value (if not held to maturity) when interest rates rise.

2. Bonds are much longer term, so you can lock in a good rate. The longest CD I've heard of is 5 years. There are 100 year bonds.

Answer 3

It all depends on who issues the C.D.'s or Bonds.

Some people feel that government issued bonds are safer than bank issued C.D.'s

When a bank issues a C.D. it is essentially borrowing the money from the buyer of the C.D. with a written promise to pay it back with interest at the time of maturity.

Municipal bonds are issued by a municipality and are paid off by the tax payers.
Same thing with U.S. gvt. issued bonds, the interest and principle are paid for by the tax payers.

Note:
If real inflation equals 6% for the life of your C.D. or bond investment and your bond or C.D. is pegged at 5% until maturity, you lost 1% of buying power with your invested money.....My advice....Buy Gold!!!

Answer 4

both are the same right now but some long term municiapl bonds have great pay back. Also I boy tax free bonds so no tax. even at a less rate there is no tax so you get more for the investment.