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Types of Fixed Income Products

As stated earlier, the most common example of a fixed-income security is a government or corporate bond.

• Treasury bills (T-bill) are short-term fixed-income securities that mature within one year that do not

pay coupon return. Investors buy the bill at a price less than its face value and investors earn that

difference at the maturity.

• Treasury notes (T-note) come in maturities between two and 10 years, pay a fixed interest rate, and

usually have a $1,000 face value. At the end of the maturity, investors are repaid the principal but

earn semi-annual payments of interest each year they hold the note.

• The Treasury bond (T-bond) is very similar to the T-note except that it matures in 30 years. Treasury

bonds can have face values of $10,000 each.

• Treasury inflation protected securities (TIPS) protects investors from inflation. The principal amount

of a TIPS bond adjusts with inflation and deflation.

• A municipal bond is similar to Treasury’s but is issued and backed by a state, municipality, or county,

and finances capital expenditures. Muni bonds can have tax-free benefits to investors as well.

• Corporate bonds come in various types, and the price and interest rate offered largely depends on

the company’s financial stability and its creditworthiness. Bonds with higher credit ratings typically

pay lower coupon rates.

• —also called high-yield bonds—are corporate issues that pay a greater coupon due to the higher risk

of default. Default is when a company fails to pay back the principal and interest on a bond or debt

security.

• A Certificate of deposit (CD) is a fixed income vehicle offered by financial institutions with maturities

of less than five years. The rate is higher than a typical saving account, and CDs carry FDIC or

National Credit Union Administration (NCUA) protection.

• Fixed income mutual funds—such as those offered by Vanguard—invest in various bonds and debt

instruments. These funds allow the investor to have an income stream with the professional

management of the portfolio. However, they will pay a fee for the convenience.

• Asset-allocation or fixed income work much like the mutual fund. These funds target specific credit

ratings, durations, or other factors. ETFs also carry a professional management expense.

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