Bonds are typically a word most investors have heard of, but it is an investment that is not fully understood. Shares however, are generally well understood, investors know they can fluctuate in value, they sometimes pay a dividend, they can be risky. Bonds are seen as ‘safer’ investment options, but that is not always the case. Bonds versus Term Deposits Comparing a bond to a term deposit from a major bank; a term deposit is an agreement from the investor to lend a specified amount of money to the bank, with an agreed interest rate, with agreed repayment terms. Throughout the term of the investment, the investor will receive interest on monthly, quarterly or at maturity of the investment. If the investor wishes to receive their money back, prior to the maturity of the investment, the bank will penalise the investor (for breaking their contract) by reducing the amount of interest which is to be paid. In New Zealand, this can turn a 4.5% interest rate (per annum), to a 1.5% interest rate by penalising the lender 3% of the […]
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