Term bonds are bonds whose entire principal amount is due on a single date. Most corporate bonds are term bonds. Serial bonds have principal payments that are required at specific intervals. Serial bonds are often issued by state or local municipalities. Suppose that the city of San Francisco issues $5 million of serial bonds whose terms require that $500,000 of the bonds are repaid every 5 years, beginning 5 years after the date of issue. Thus, for the first 5 years, $5 million in bonds will be outstanding; and for the second 5 years, $4.5 million will be outstanding; and so forth. From the perspectives of both the investors and the issuer, serial bonds help to ensure that the issuer will be able to repay the entire principal.Definitions
Term Bonds
Serial Bonds
Example
Term Versus Serial Bonds FAQs
A term bond is a debt security that has a defined maturity date. A serial bond, on the other hand, does not have a maturity date, and instead pays periodic interest payments until it is redeemed.
Generally speaking, term bonds are less risky than serial bonds, because they are more likely to be repaid in full. However, there can be risks associated with both types of bonds. For example, if the issuer of a bond goes bankrupt, both term and serial bonds may become worthless.
There are several reasons why someone might choose to invest in a serial bond. One reason is that serial bonds often have higher interest payments than term bonds. Another reason is that serial bonds can be more flexible since they don’t have a set maturity date.
The main risk associated with investing in serial bonds is that the issuer may not be able to make all of the scheduled payments. If this happens, the value of the bond may decline. Additionally, there is always the risk that the issuer will go bankrupt, in which case the bond may become worthless.
There are several ways to invest in serial bonds. One way is to purchase them directly from the issuer. Another way is to buy them through a broker or an investment company. Finally, you can also invest in serial bonds through a mutual fund or an exchange-traded fund.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.
