Can I Lose Money on Bonds?

Bonds are not FDIC insured and you can lose money

Dear BLR Editor,

I have a little bit of cash and am tired of the near-zero percent of checking and even savings accounts.  I’ve been thinking about investing in bonds – perhaps municipal bonds or even government bonds.

The question I have is: are bonds guaranteed by the FDIC?  Can I lose money on bonds?  I really don’t want to put the cash I have at risk.

- Sandra

 

Editor – Thanks for the question, Sandra.  Bonds are NOT FDIC insured and you can lose money on a variety of bonds.  The question however, is which types of bonds we are talking about.  The safest are federal government bonds, such as EE/E bonds and I bonds and these are backed by the full faith and credit of the United States.

Municipal and corporate bonds are a different matter.  Some are rated higher than others and you have to be careful in your research before you purchase these, because companies as well as municipalities can go belly up, losing you your investment. Jefferson County, Alabama just filed for bankruptcy as did the Houston-based Dynergy power corporation.  Bondholders in both cases will be hit very hard.

Buying IBM and Microsoft bonds on the other hand – large, cash-rich transnationals – is a much safer bet.  To research federal government bonds, look here.  To research corporate and municipal bonds, look here.

I wish you the best with your investments.