Best Online Brokers for Bonds

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Jordan Robertson
Contributor, Benzinga
February 14, 2024

Jump straight to the answer. Benzinga readers often choose Interactive Brokers as the best brokers for bonds.

This article discusses the importance of bonds in portfolios. Even if you have a long investment horizon and are comfortable taking risks, it is still beneficial to understand bonds and their role in a portfolio. As we get older, bonds become more significant in the overall investment strategy. Therefore, it is essential for investors to be familiar with the top online brokers for bonds.

The Best Online Brokers for Bonds

Table of Contents

There are multiple brokers with a variety of bond offerings. The choice of the right broker depends on your goals. Benzinga has created a list of our top five brokers for bond traders. It is essential for bondholders to open a brokerage account that fully caters to their needs. Each mentioned broker has a distinct characteristic that distinguishes them from others.

Best Overall: Interactive Brokers

Interactive Brokers is another oasis for active traders, with a host of advanced features, customizable platforms and discounts for large movers. Bond traders can find plenty to like on Interactive Brokers as well, as long as they understand the fee structure. Commissions are percentage-based — Treasuries are 0.002% for the first $1 million ($5 min), municipal bonds are 0.05% for the first $10,000 ($1 min, $125 max), and corporate bonds and CDs are 0.1% for the first $10,000 ($1 min, $250 max).

The access to bonds provided by Interactive Brokers is highly coveted in the industry. They offer a wide range of options including government bonds, municipal bonds, and corporate bonds. The Bond Search tool allows clients to easily sort and browse the entire marketplace based on criteria such as yield, maturity, and country of origin. Interactive Brokers stands out as one of the top-rated brokers for bonds due to their extensive selection.

Pros

  • IBKR offers the most availability on the market for investment management
  • Percentage-based commissions can provide you with immediate knowledge of the amount you will spend when you initiate trades either in mutual funds or in bonds.

Cons

  • Understanding what you see can be challenging when using IBKR to search for bonds and access different assets, especially for new investors maintaining investment management.

Best for Trading Ideas: Public.com

When you invest with Public.com, you have access to a wide variety of assets to build your portfolio. These assets include bonds, stocks, ETFs, options, and more. Additionally, there are even alternative assets available for investment. However, one investment strategy that is often overlooked is buying bonds.

When you buy into the bond market with Public, you can invest in corporate, municipal and treasury, study the market and avail yourself of educational tools that explain strategies and more. You can even enter “education mode” so that you can protect yourself as a beginner.

Pros

  • You can learn all about bonds before getting started considering your fixed income & manage investments
  • The market is covered by a wide range of bonds that cater to all segments including insurance, mutual funds etc.
  • You can fill your portfolio with several other assets at the same time without any fee

Cons

  • You may want to see a larger selection of bond offerings

Best for Desktop Trading: E*TRADE

E*TRADE is the complete package for bond traders. There are about 50,000 different bonds or bond-like instruments available, including Treasury and Agency bonds, municipal bonds, corporate bonds, and high-yield junk bonds. Treasuries are fee-free at auction and on the secondary market, whereas other new offerings require a commission when sold only. Other secondary market bond trades cost $1 per bond ($10 minimum, $250 maximum).

E*TRADE also provides multiple platforms for clients, including two different mobile apps. Power E*TRADE lives up to its name by providing an abundance of charting tools, technical indicators, and research papers. If you're new to trading or just learning how bonds work, E*TRADE is a terrific place to get started.

Pros

  • The array of bonds you can try is so large that you can build a fully diverse portfolio in a short period of time with security
  • You can trade on the go or invest with the platform that works best for you without any credit

Cons

  • The fee structure might be confusing for some investors

Best for AI Investing: Magnifi

Magnifi is a marketplace where you, the investor, can use conventional brokerage tools and AI to make the best decisions for your portfolio. Because you can get all of the information you need on a certain asset, you can easily invest in the assets that will produce the returns you expect and better match your plan.

Search for the investment options that meet your needs, invest in specific categories or scan for assets in a price range that’s affordable for you as a trader.

Best for long-term investors and those who require a bit of client support, you can also learn more about investing from this platform using credit rating, utilize the AI-powered investing assistant, enjoy commission-free investing, try the mobile app and take advantage of over 15,000 possible investment options. This makes Magnifi a good place to trade for both seasoned and novice traders as they have a wide diversification portfolio.

Pros

  • You can save quite a lot of time and money using this platform/mobile app
  • If you need some advice or guidance, you can allow the AI portion of the site to help you with the data including credit risk

Cons

  • While the platform has more than 15,000 investment options, it may seem overwhelming given that you may be giving AI control over your portfolio

Best for Fund Investing: Charles Schwab

Charles Schwab is one of the most-recognized brokers in the U.S.. Once the subject of a brilliant marketing campaign featuring Charles Schwab himself, hoping to engender confidence in the public, Schwab has since expanded to offer stocks, bonds, options, mutual funds, ETFs, futures, foreign stocks and robo-advisors. boasts over 31 million customers who have $8.09 trillion in assets under management.

Bonds products are designed to be affordable. Customers can benefit from premium third-party research and 24/7 customer support through various channels. Additionally, Schwab Intelligent Portfolios offers an all-digital investment advisor.

Pros

  • Schwab creates a place for you to invest with confidence
  • The platform offers a wide range of investment options. You can make wise investment decisions and choose the assets that suit your needs.
  • You can educate yourself about investing and explore additional features the platform has to offer.

Cons

  • While the platform is quite robust, it may not fall in line with your personal financial needs as per stock market trend.

Best for Futures Trading: TradeStation

TradeStation is an advanced trading platform geared toward active investors, which doesn’t exactly sound like the typical bond market participant. Of course, that doesn’t mean TradeStation lacks bond offerings. Trading bonds is a bit pricey on TradeStation — you’ll pay a $14.95 flat fee and then an additional $5 per bond. But the fees are worth it if you plan on using the full suite of TradeStation platforms.

TradeStation offers two platforms. The first is the Desktop 10 platform for Windows operating systems. The second is the web browser version, which works on both Mac and PC browsers and includes most of the features of the Desktop version.

Need to go mobile? TradeStation mobile is available for both iOS and Android phones, and you don’t even need an account to test out the app.

Pros

  • Flat fee pricing helps you predict your overhead costs
  • Multiple platforms cater better and easy customer services
  • As you customize your desktop, you can create a trading station that makes the most sense for you with low expense

Cons

  • You may want more functionality from this platform if you’re trading a wider variety of assets

What is a Bond?

Bonds have various names such as fixed income, debt, and credit securities. However, they can also be thought of as loans, where an institution borrows money from an investor and pledges to repay it later. For example, if you lend money to a friend and they repay you after a month, you essentially issued a 30-day bond to your friend. It is worth noting that in this scenario, you probably didn't charge interest because you are a kind person.

Bond investors can earn money in two ways: through price appreciation and coupon payments. When a bond is issued, it is assigned an interest rate and a maturity date. The interest rate determines the amount of the coupon paid to investors throughout the bond's lifespan. The maturity date marks the expiration of the loan, at which point the institution must repay the investor. If interest rates increase, bond prices decrease because newer bonds offer higher interest rates.

Bonds are a popular investment choice due to their lower risk compared to stocks and their ability to generate consistent income through coupon payments. However, returns from bonds have been significantly lower than those from other types of investments in recent years.

Pros and Cons of Bonds Investing

Pros

  • Competitive interest rates
  • Portfolio diversification
  • Inflation rates

Cons

  • One year lock up
  • Early withdrawal penalty
  • Interest is taxable

How Do Bonds Function?

Companies frequently issue bonds or stock to raise capital. The corporation sells off little portions of itself when it issues shares, receiving cash up front in exchange. Following that, a portion of the business's future profits are due to the shareholders. However, since newly issued shares decrease the value of already issued shares for easier market access, stock offerings are typically not the first option.

Companies can raise cash by selling bonds. Bonds do not give the buyer any ownership claim, but they do have priority over shareholders in case of bankruptcy. For example, if you purchase a $1,000 bond with a 4% coupon and a 3-year maturity from XYZ Corp, you will pay the company $1,000 upfront and receive $40 in interest payments over the next 3 years. When the bond reaches maturity, the face value of $1,000 is repaid. If the face value remains $1,000, your total investment will be $1,120.

Types of Bonds

  • Treasuries: The federal government issues bonds in the form of Treasuries, which typically are measured in durations of 3 months to 30 years. The 10-year Treasury rate is the primary interest rate used to judge inflation in the United States. When you hear financial prognosticators talking about rising rates, they’re usually talking about the 10-year Treasury or the Fed Fund rates.
  • Agency bonds: These are bonds issued by the government (or government-sponsored entity) for a specific public purpose. Agency bonds are backed by the federal government and have little risk of default.
  • Municipal bonds: Popular because of their favorable tax treatment, municipal bonds are issued by state and local governments for infrastructure projects like roads and schools. Municipal bonds have a higher rate of default than bonds issued by the federal government.
  • Corporate bonds: Bonds issued by corporations often have the highest interest rates but also carry the biggest risk of default. The federal government has never defaulted on its debt, but public companies fail all the time and when they do, the bonds often become worthless.

Use Bonds to Pare Risk

The 60/40 portfolio may no longer be the bread and butter of the retirement industry, but bonds still have a place in most portfolios. Yes, bonds are boring and stocks provide not only better returns but the excitement of owning a little piece of a profitable company. But sometimes squeezing out every last penny of profit isn't the primary goal for an investor.

If you’re looking to minimize risk in your portfolio or earn a consistent annual income through interest payments, consider putting some bonds into your portfolio. Your investment journey can take you to retirement and beyond if you invest well with an investment advisor or research with Benzinga.

Frequently Asked Questions

Q

Are bonds a good investment?

A

Bonds are less volatile and more suited for investors who are risk averse, but they frequently fall short of stock returns.


Q

Is it possible to lose money when buying bonds?

A

Yes, there are a variety of dangers associated with bonds, including interest rate and inflation risk. Bond prices are subject to change based on these risks and are not fixed. All bonds also carry the risk of default. Default risk is quite minimal for federal bonds, such as U.S. Treasuries, despite what Peter Schiff may say. High-graded corporate and foreign bonds carry a significantly higher default risk.