How to Buy Bonds Online: Individual Bonds vs Bond Funds
Researched and drafted with AI assistance from published sources; edited and published by NorwegianSpark SA.
Last updated: October 2026 · 10 min read
This article is for informational purposes only and does not constitute financial advice. Always consult a qualified financial adviser before making investment decisions.
Capital at risk. Bond prices fall when interest rates rise, issuers can default, and bond funds have no maturity date at which you are sure to get your money back. This is general information, not personalised advice.
There are three ways to buy bonds online: directly from a government (in the US, Treasury bills, notes, bonds, TIPS and I bonds through TreasuryDirect, from $100); individual bonds through a brokerage account, where you pay the dealer's markup inside the price; or a bond fund or ETF, which you buy like a share and which holds hundreds of bonds for a small annual fee. Individual bonds suit money you need on a known date, because you get the face value back at maturity if the issuer pays. Funds suit ongoing diversification, but their value moves with interest rates and never "matures". The worked examples below show what each route pays and costs.
The three routes compared
| Direct from the government | Individual bonds via a broker | Bond fund or ETF | |
|---|---|---|---|
| What you can buy | That government's own debt (US: bills, notes, bonds, TIPS, I bonds) | Government, municipal and corporate bonds | A diversified basket, from short-term government to high-yield corporate |
| Minimum | US: $100, in $100 steps | Often $1,000 face value per bond, sometimes more | One share or unit |
| Main cost | None charged by TreasuryDirect | Dealer markup built into the price | Annual expense ratio |
| Maturity | Fixed date; face value returned | Fixed date; face value returned if the issuer pays | None — the fund keeps buying new bonds |
| Selling early | Hold 45 days, transfer to a bank or broker, sell at market price; I bonds have their own rules | Market price, which may be below what you paid | Sell at any time at the market price |
Route 1: buying US government bonds directly
TreasuryDirect sells the US government's securities to individuals with no fee. The terms, from its own pages:
| Security | Terms | Interest |
|---|---|---|
| Treasury bills | 4, 6, 8, 13, 17, 26 and 52 weeks | Sold at a discount; you receive face value at maturity |
| Treasury notes | 2, 3, 5, 7 or 10 years | Paid every six months |
| Treasury bonds | 20 or 30 years | Paid every six months |
| TIPS | 5, 10 or 30 years | Paid every six months on a principal that rises with inflation and falls with deflation |
| I bonds | Up to 30 years | Composite rate of 4.26% (including a 0.90% fixed rate) for bonds issued 1 May to 31 October 2026 |
Interest on Treasury notes, bills and bonds is subject to federal tax but not state or local tax. TIPS never repay less than the original principal at maturity, even after deflation. I bonds have three rules worth knowing before buying: one Social Security number can buy up to $10,000 of electronic I bonds a calendar year; you cannot cash them in for the first 12 months; and if you cash in before five years, you lose the last three months of interest.
Worked example — a Treasury note: a $10,000 note with a 4% coupon pays $200 every six months, $400 a year, and returns $10,000 at maturity. (The coupon is set at auction; 4% is an example.) That $400 is taxed federally but not by your state.
TreasuryDirect is for US residents with a US taxpayer number. Investors elsewhere usually buy their own government's bonds through a broker or a fund; check whether your government offers a direct retail channel.
Route 2: individual bonds through a broker
Most large brokers list government, municipal and corporate bonds on the secondary market. Two numbers matter more than the coupon.
The price. Bonds are quoted per 100 of face value. A $10,000 bond quoted at 97.50 costs $9,750. If it pays a 4% coupon, you get $400 a year — a current yield of 400 ÷ 9,750 = 4.10% — plus $250 more at maturity than you paid, if the issuer pays in full. A bond quoted above 100 works the other way: you lose the premium by maturity.
The markup. Dealers usually sell bonds from their own inventory and build their profit into the price rather than charging a commission. In the US, FINRA Rule 2232 requires a firm to show the markup on a retail customer's confirmation, as a dollar amount and as a percentage of the prevailing market price, when it buys and sells the same corporate or agency bond on the same day — and to show the execution time to the second and a link to public TRACE trade data for the bond. Use that link to compare your price with recent trades. As a sense of scale: a 1% markup on a $10,000 bond is $100, a quarter of a year's interest on a 4% coupon.
Credit ratings help you judge the issuer: bonds rated BBB/Baa or higher are called investment grade; those below are high yield. A higher yield is payment for a higher chance of default.
Route 3: bond funds and ETFs
A bond fund holds many bonds and replaces them as they mature. You buy it through a broker like any share, and the fund charges an annual expense ratio. In 2025 the average bond mutual fund charged 0.36%, according to the Investment Company Institute; index bond funds are often far cheaper, so compare factsheets.
The trade-off is that a fund has no maturity date. Its price moves with interest rates for as long as you hold it, which you can estimate from the fund's duration, published on its factsheet.
Worked example — rate sensitivity: a fund with a duration of 6 years loses roughly 6% of its value if rates rise by one percentage point, and gains roughly 6% if they fall by one. On $20,000, that is about $1,200 either way. (Duration gives an approximation that is less accurate for large rate moves.) An individual bond's price moves the same way in between, but if you hold it to maturity and the issuer pays, you still receive the face value.
| Fund type | What it holds | Main risk |
|---|---|---|
| Total-market / aggregate | Government and investment-grade corporate bonds | Moderate rate sensitivity |
| Short-term government | Bonds maturing within a few years | Low rate sensitivity; lower income |
| Inflation-linked | Bonds such as TIPS | Real-rate changes can still move prices |
| Municipal (US) | State and local government bonds | Credit and rate risk; tax benefit depends on your bracket |
| High yield | Below-investment-grade corporate bonds | Default risk, which tends to rise in recessions |
If you buy a fund holding bonds in another currency, exchange-rate moves can outweigh the interest; currency-hedged share classes explain the option to remove most of that.
Which route fits which job
How much to hold in bonds depends on when you need the money and how much fall you could sit through. The old rule of thumb of holding your age as a percentage in bonds is a starting point, not an answer; the approaches are compared in bond investing strategies.
Frequently asked questions
Can I buy Treasury bonds directly without a broker?
Yes, if you are a US resident with a taxpayer number: TreasuryDirect sells bills, notes, bonds, TIPS and I bonds from $100 with no fee. To sell a marketable Treasury before maturity, you must first hold it in TreasuryDirect for 45 days and then transfer it to a bank, broker or dealer, which sells it for you.
Is it better to buy individual bonds or a bond fund?
Individual bonds suit a known future expense, because you get the face value back at maturity if the issuer pays. Funds give wider diversification and easier buying and selling, but their value moves with interest rates and they never mature.
What happens to my bond if interest rates rise?
Its market price falls, roughly by its duration times the rate rise. If you hold an individual bond to maturity and the issuer pays, you still receive the face value; a fund has no maturity date, so its price stays exposed.
How do I know if I am paying a fair price for a bond?
Check the markup and the TRACE link that FINRA Rule 2232 requires on US retail confirmations for corporate and agency bonds, and compare your price with recent trades in the same bond.
About this article
YieldNav is operated by NorwegianSpark SA (org. 834 984 172), founded by Thomas Lovas Lokoy. We are not licensed financial advisers, and nothing here is personalised advice. Read our about page, editorial policy and affiliate disclosure.
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