Area of Law: Investments and Securities
Answer # 282
BondsRegion: Ontario Answer # 282
A bond is a loan. When you buy a bond, you are loaning your money to the company or government that issued the bond. The company or government promises to pay you a specific amount of interest for a specific period, and they also promise to repay the loan.
Investing in bonds, especially those issued by the Canadian government, provincial government or the U.S. government, is usually a fairly safe way to invest. Bonds also offer some certainty about the amount of return on your investment.
There are many different types of bonds, and each offers different benefits and risks.
Canada Savings Bonds
A common type of bond is a Canada Savings Bond (CSB). Since 2012, CSBs were only available to employees whose employer participated in the “Payroll Savings Program”.
Canada Premium Bonds
The Canada Premium Bond (CPB) is another safe and secure investment savings product issued and fully guaranteed by the Government of Canada. There are two kinds of CPBs; regular interest bonds pay interest each year, and compound interest bonds reinvest the interest you receive or compound the interest that is then paid out at maturity or when it is redeemed.
When the bond matures, or when you redeem the bond, you receive the face value of the bond, plus any interest that is owed to you.
Canada Bonds discontinued
As of November 2017, the Government of Canada has discontinued the sale of both Canada Savings Bonds (CSBs) and Canada Premium Bonds (CPBs).
Any CPBs and CSBs that customers currently hold are safe, guaranteed, and will be honoured at the time of redemption or maturity, whichever comes first. The bonds will continue to earn interest until redemption or maturity, according to the terms and conditions of the bonds.
For more information, visit the Government of Canada website.
Another common type of bond is a Treasury Bill. Treasury Bills are commonly known as T-bills. T-bills are sold at a discount, which means that you pay less than the face value of the T-bill when you buy it. Your return on the investment is the difference between the price you pay for the T-Bill and the face value of the T-Bill, which you receive when the T-bill matures.
Companies can also issue bonds. Like government bonds, corporate bonds are a loan that you make to a company. The company promises to pay you interest for the loan and to repay the amount of principal that you invested. There are many kinds of corporate bonds, and each offers different features and advantages. If you want to buy or sell corporate bonds you will have to do so through an investment advisor, who can buy or sell bonds in the bond market.
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