{"id":8925,"date":"2022-08-01T15:17:55","date_gmt":"2022-08-01T22:17:55","guid":{"rendered":"https:\/\/www.nerdwallet.com\/ca\/?page_id=8925"},"modified":"2023-10-04T07:52:03","modified_gmt":"2023-10-04T14:52:03","slug":"what-is-a-bond","status":"publish","type":"page","link":"https:\/\/www.nerdwallet.com\/ca\/investing\/what-is-a-bond","title":{"rendered":"How Do Bonds Work in Canada?"},"content":{"rendered":"\n

Bonds are a type of investment product that is less volatile than other investments, such as individual stocks.<\/p>\n\n\n\n

As a fixed-income product, bonds appeal to investors who may use them to reduce the overall risk in their portfolios. How bonds fit into your investment strategy will depend on your goals, risk tolerance and time frame.<\/p>\n\n\n\n

\u00bb GUIDE:<\/strong> Investing for Canadian Beginners<\/a><\/p>\n\n\n\n

What is a bond?<\/h2>\n\n\n\n

When governments and companies need to raise funds, they sometimes issue bonds. Investors who purchase these bonds are essentially lending money to the bond issuer. In return, the bond issuer will pay back the loan, plus interest.<\/p>\n\n\n\n

Bonds are appealing to some investors because they offer a fixed rate of return. Generally, short-term bonds pay a lower interest rate than long-term bonds.<\/p>\n\n\n\n

Since bonds involve less risk than other investments, like stocks<\/a>, the returns are typically lower. That said, some bonds pay a higher interest rate because the issuers may not be as creditworthy, so investors are taking more of a risk by buying those bonds.<\/p>\n\n\n\n

Current interest rates can also affect bond returns. In a low-interest-rate environment, bonds will pay lower interest rates<\/a>. Although investing in bonds may only yield low returns, there\u2019s little chance you\u2019ll lose money.<\/p>\n\n\n\n

Types of bonds<\/h4>\n\n\n\n

Although all bonds are a type of fixed-income security, different types of bonds are available. The most common bonds include:<\/p>\n\n\n\n