How to Buy Bonds Online: A Practical Guide for New Investors

Bonds are one of the oldest and most reliable asset classes, yet many individual investors overlook them. If your portfolio is 100% stocks, you're missing a key tool for reducing volatility, generating income, and preserving capital. This guide explains what bonds are, the different types available, and exactly how to buy them online.

What Is a Bond?

A bond is essentially a loan you make to a borrower — typically a government or corporation. In return, the borrower pays you regular interest (called the coupon) and returns your principal when the bond matures. Bonds are called "fixed income" because the interest payments are predetermined and predictable.

For example, if you buy a 10-year US Treasury bond with a 4% coupon and a $10,000 face value, you'll receive $400 per year in interest for 10 years, plus your $10,000 back at maturity.

Types of Bonds

US Treasury Bonds

Issued by the US government, Treasuries are considered the safest bonds in the world. They come in several maturities: T-Bills (under 1 year), T-Notes (2-10 years), and T-Bonds (20-30 years). Interest is exempt from state and local taxes.

Municipal Bonds

Issued by state and local governments to fund public projects. "Munis" offer a key advantage: interest is typically exempt from federal income tax, and often state tax if you buy bonds from your home state. This makes them particularly valuable for investors in high tax brackets.

Corporate Bonds

Issued by companies to raise capital. Corporate bonds generally offer higher yields than government bonds to compensate for the additional risk. They're rated by agencies like Moody's and S&P — "investment grade" bonds (BBB/Baa and above) are considered relatively safe, while "high yield" or "junk" bonds (below BBB/Baa) offer higher returns with greater risk.

I Bonds (Series I Savings Bonds)

Issued by the US Treasury with an interest rate that adjusts for inflation. You can buy up to $10,000 per year directly from TreasuryDirect.gov. I Bonds have become popular as an inflation hedge, though they must be held for at least one year and incur a 3-month interest penalty if redeemed within five years.

Treasury Inflation-Protected Securities (TIPS)

Similar to I Bonds in their inflation protection, but TIPS trade on the open market, making them easier to buy and sell in larger quantities. The principal adjusts with inflation, and you receive interest based on the adjusted principal.

How to Buy Individual Bonds Online

TreasuryDirect.gov

For US Treasury securities and I Bonds, TreasuryDirect.gov is the primary source. You can buy T-Bills, T-Notes, T-Bonds, TIPS, and I Bonds directly from the government with no fees. The interface is dated, but it works. Set up an account with your Social Security number and bank information, and you can purchase bonds at auction or buy I Bonds at any time.

Through Your Broker

Most major brokers — Fidelity, Schwab, Vanguard, Interactive Brokers — offer bond trading. You can buy Treasuries, municipal bonds, and corporate bonds on the secondary market. Fidelity and Schwab are particularly strong for individual bond purchases, offering large inventories with transparent pricing.

When buying bonds through a broker, pay attention to the markup (the difference between what the dealer paid and what they're selling it to you for). For Treasuries bought at auction through your broker, there's typically no markup. For secondary market bonds, markups of 0.5% to 1.0% are common.

How to Buy Bond ETFs and Funds

For most individual investors, bond ETFs are simpler and more practical than buying individual bonds. A single bond ETF gives you exposure to hundreds or thousands of individual bonds, providing instant diversification.

Popular bond ETFs include:

You buy bond ETFs exactly like stock ETFs — through your broker, with a ticker symbol and a market or limit order.

How Much of Your Portfolio Should Be in Bonds?

The classic rule of thumb — hold your age in bonds (a 30-year-old holds 30% bonds) — is a reasonable starting point but overly simplistic. A more nuanced approach considers your risk tolerance, income needs, and investment timeline.

General guidelines:

Bonds serve as ballast during stock market downturns. In a crash, your bond holdings provide stability and dry powder for rebalancing into stocks at lower prices. This rebalancing bonus is one of the underappreciated benefits of holding bonds.

Bond Risks to Understand

Interest rate risk: When interest rates rise, existing bond prices fall. This matters if you sell before maturity, but not if you hold to maturity. Longer-duration bonds are more sensitive to rate changes.

Credit risk: The risk that the bond issuer defaults. Minimal for US Treasuries, moderate for investment-grade corporate bonds, significant for high-yield bonds.

Inflation risk: Fixed-rate bonds lose purchasing power if inflation exceeds the coupon rate. TIPS and I Bonds address this directly.

Getting Started

If you're new to bonds, the simplest path is buying a total bond market ETF like BND or AGG through your existing brokerage account. One purchase gives you diversified exposure to thousands of bonds. As your portfolio grows and your needs become more specific, you can explore individual bonds, municipal bonds for tax efficiency, or TIPS for inflation protection.

Bonds aren't exciting, and they won't make you rich quickly. But they play a critical role in any well-constructed portfolio — providing income, reducing volatility, and giving you the stability to stay invested through turbulent markets.

About this article

This article was produced by Daniel Marchetti — written with AI assistance and reviewed by the NorwegianSpark SA editorial team. YieldNav is operated by NorwegianSpark SA (org. 834 984 172), founded by Thomas Løvås Lokøy and Øyvind. We are not licensed financial advisers, and nothing here is personalised advice. Read our about page and affiliate disclosure.