Is fixed interest the same as bonds?

While the terms fixed interest and bonds are generally used interchangeably, there is a slight difference between them.

A fixed income investment is a generic term that describes any investment whereby regular income is gained, with an established return. The list does not only stop at bonds, but also applies to some types of certificates of deposit, some annuities, and preferred stocks. Its defining quality is the return on investment predicted, which is usually paid in interest or dividend form.

1. Bonds:

Are a specific type of fixed-interest security. These instruments represent lending money to an issuer, either a government or a corporation. In return, the issuer promises to return the principal amount at maturity, coupled with periodic payment of interest. The latter is commonly known as "coupons."

2. Relationship Between the Two:

• All bonds are fixed-income securities. This is because the fact that they offer a fixed interest paying schedule.
• Not all fixed-interest securities are bonds. Even though the most prevalent forms of fixed-interest investments are bonds, other forms of securities, such as CDs and annuities, may also offer returns fixed at a predetermined rate.

3. Key Differences:

• Issuer: Bonds are issued by either governments or corporations, while the issuers of CDs are usually banks.
• Maturity: Bonds have a due date for maturity, while in the case of CDs, it may either be fixed for a term or renewable.
• This carries with it a level of risk because there is a chance that the issuer could default on the loan. Generally speaking, CDs are a lot safer, as they are insured under the Federal Deposit Insurance Corporation in the United States.

In conclusion

Fixed interest and bonds are terms, but they differ in the scope of their meaning. Fixed interest represents any form of investment with regular predictable income, while bonds represent a specific security of fixed interest issued by governments or corporations. One Pacific Trust is envisioned to be a premier trust services provider that shall lead the clients in investment opportunities down the path to securing their financial positions through fixed interest and bonds.