Bonds and bond funds provide investors access to interest income from governments and corporations, domestic and foreign. If you sell it up to a year from purchase, the gains are taxed at your ordinary rate. This table provides the monthly weighted average interest rates and the monthly rates of 30-year Treasury securities. However, if you hold them to maturity, you do not pay capital gains or other taxes on the amount by which the face value you receive exceeds the discounted amount you paid for the bonds. Con: They’re both expensive. Both pay interest and capital gains in the form of dividends. During intervals of rising bond yields its price goes up.

I graduated from Harvard in 1973, have been a journalist for 45 years, and was editor of Forbes magazine from. Internal Revenue Service Topic 403: Interest Received, Internal Revenue Service Publication 550: Investment Income and Expenses, Internal Revenue Service Topic 856 - Foreign Tax Credit, Investing in Bonds: How Corporate Bonds Are Taxed, Securities and Exchange Commission: Zero Coupon Bonds. Because these bonds typically contain the highest level of default risk, they also pay the highest interest rates of any major category of bond. (If you own shares in bond mutual funds, your interest income will come to you in the form of “dividends” from the fund, but these are fully taxable and are not eligible for the maximum 15% tax rate that otherwise applies to dividends.)
The full face value is paid at maturity.

Down the road, you might be reinvesting on worse terms. The iShares Interest Rate Hedged Corporate Bond ETF gets on …
You may generate capital gains on a corporate bond if you sell it at a profit before it matures. In high-tax locations such as New York City, triple tax-free municipal bonds are free from city, state and federal income tax to city residents. All Rights Reserved, This is a BETA experience. Non-trading (passive) income includes dividends from companies tax resident outside Ireland (with some exceptions), interest, rents, and royalties. Based in Greenville SC, Eric Bank has been writing business-related articles since 1985. If rates rise the notes fall in price and you make money. Foreign jurisdictions may assess U.S. residents a withholding tax that reduces the amount of bond interest received. Opinions expressed by Forbes Contributors are their own. Displays current day's interest rates for Insured Bank Deposit for Interest Rate Tiers 1 through 5 for the respective Pricing Group Ranges. Zero coupon bonds and Treasury bills are issued at a discount and do not pay interest until maturity. The perplexing $130,000 price corresponds to $100,000 of imaginary T-notes with 6% coupons. IVOL blends a large position in inflation-protected Treasury bonds with a small stake in speculative yield-curve options. Conversely, if you sell a bond for less than you paid, you may incur a capital loss. © 2020 Forbes Media LLC.