There are various types of fixed-income securities, each having different features. The following are the most common types that you may want to know.
Treasury notes (T-notes)
The treasury notes are a kind of intermediate-term bonds maturing in 2, 3, 5, or 10 years respectively. The bonds are issued by the U.S. Treasury. Typically, treasury notes have a $1,000 par value, and the interest payments are paid semiannually with fixed interest rates or coupon rates. The U.S. government guarantees the interest payment as well as the principal repayment with complete faith and credit.
Treasury bonds (T-bonds)
This type of fixed-income security is also issued by the U.S. Treasury, but T-bonds mature in thirty years. Treasury bonds are generally sold on auction, and they usually have face values of $10,000.
Treasury bills (T-bills)
Treasury bills are a kind of short-term fixed-income securities that mature within 1 year from issuance. T-bills do not pay interest, but investors can purchase the security at a price lower than the par value. Once the security matures, investors can be repaid as much as the amount of the par value.
Municipal bonds are government bonds usually issued by cities, states, and counties to raise funds for capital projects like building schools, roads, and hospitals. The interest earned on municipal bonds can be exempted from federal income tax (sometimes state and local taxes can also be exempted). Municipal bonds usually have a face value of $5,000.
Certificate of Deposits (CDs)
A CD is usually issued by a bank, and the interest will be paid by the bank to the account holder. Typically, certificates of deposits mature less than 5 years. Compared with bonds, the interest rate is lower.
Preferred stocks are issued by companies to offer investors a fixed dividend, which is set as a percentage of share value on a previously determined schedule. The price of preferred stocks will be impacted by inflation and interest rates. Preferred stocks generally have higher yields than other bonds because of longer duration.