Yes, this is an article about bonds, but before you slam that back button on your browsers, know that bonds still have a place in most portfolios. If you’re a risk-taker with 30 years of investing ahead of you, a portfolio of only stocks is probably something you can. But it’s worthwhile to at least learn about bonds and their place in a portfolio because as we age, bonds become an increasingly important part of the puzzle. That's why as an investor, you need to know about the best online brokers for bonds.
Quick Look: The Best Online Brokers for Bonds:
- Best for Lowest Margin Loan Rates: Interactive Brokers
- Best for Desktop Trading: E*Trade
- Best for Long-Term Investors: Magnifi
- Best for Options Trading: TD Ameritrade
- Best for ETF and Mutual Fund Investing: Vanguard
- Best for Futures Trading: TradeStation
Best Online Brokers for Bonds
You’ll find no shortage of brokers with diverse bond offerings, so finding the right one depends on your goals. Benzinga has created a list of our five favorite brokers for bond traders. Each broker here brings a special attribute — something they do better than anyone else.
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).
But the access to bonds Interactive Brokers provides is the envy of the industry. You’ll get the full spectrum of government bonds, over 1 million different municipal bonds and 25,000 corporate bonds. All of these are easily sorted with the Bond Search tool, which allows clients to browse the entire marketplace based on criteria like yield, maturity and country of origin. Interactive Brokers is one of our top-rated brokers for bonds thanks to their robust range.
Best for Ease of Use: E*TRADE
E*TRADE is the total package for bond traders. You’ll find over 50,000 different bonds or bond-like securities, including Treasuries and Agency bonds, municipal bonds, corporate bonds and high-yield junk bonds. Treasuries are commission-free at both auction and on the secondary market, while other new offerings have a commission when sold only. Other secondary market bond trades are $1 per bond ($10 min, $250 max).
E*TRADE also has multiple platforms for clients, including two different mobile apps. Power E*TRADE lives up to its name with an endless supply of charting tools, technical indicators and research reports. If you’re new to trading or just learning how bonds work, E*TRADE is a great place to start.
Best for Long Term Investors: Magnifi
Magnifi is a marketplace that allows you, as the investor, to use common brokerage tools and AI to make the best decisions for your portfolio. Because you can pull up all the information you need on a given asset, you can easily invest in the assets that will give you the results you deserve and better match your strategy.
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.
Best for long-term investors and those who require a bit of client support, you can also learn more about investing from this platform, 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.
Best for Mobile Trading: TD Ameritrade
TD Ameritrade has similar bond offerings and prices as E*TRADE. Over 40,000 types of bond securities are available, including 300 commission-free bond ETFs. Treasuries at auction can be purchased commission-free, but all other bonds are available on a net yield basis. Secondary market transactions are tagged with a $1 commission per bond.
TD Ameritrade’s biggest selling point is its mobile offerings, featuring the impressive Thinkorswim platform. Both the traditional mobile app and Thinkorswim have loads of charting tools and useful real-time news updates, but Thinkorswim provides some sophisticated technical tools and advanced trading features not found on other mobile apps.
Best for Low Fees: Vanguard
- Vanguard Personal Advisor ServicesMore DetailsBest ForETF and Mutual Fund Investing
Vanguard scored points for low fees — shocking! But John Bogle’s empire spans vast distances when we’re talking about commissions and trading fees. Most brokers offer commission-free purchases on U.S. Treasuries at auction and Vanguard is no exception. However, Vanguard also has zero commission on agency bonds, corporate debt and certificates of deposit (CDs) when purchased at auction.
On the secondary market, Treasuries trade commission-free while agencies, corporate bonds, municipal bonds and CDs are charged $1 per $1,000 of face value (up to $250 max). Mortgage-backed securities (MBS) carry a $35 commission at auction and on the secondary market. Vanguard is another low-maintenance platform that new investors will have little difficulty navigating, but they don’t have the robust offerings or platform choices of other brokers.
Best for Range of Platforms: 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.
How many platforms does TradeStation offer? First, there’s the fully customizable Desktop 10 platform available for Windows operating systems. Then the web browser version works on both Mac and PC browsers and retains 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.
What is a Bond?
Bonds have a couple of different names: fixed income, debt, credit securities, etc. Commonly missing from this list is the word “loans,” but in reality, that’s what bonds are — an institution borrowing money from an investor with a promise to repay it later. Ever lend a friend money that was repaid a month later? You issued a 30-day bond to your friend (and likely didn’t even charge interest because you’re a good person).
Bond investors can make money in two ways — price appreciation and coupon payments. When a bond is issued, it’s given an interest rate and a maturity date. The interest rate determines the coupon amount paid to investors during the life of the bond. The maturity date is when the loan expires and the institution must repay the investor. Bond prices fall when interest rates rise since new bonds pay a higher rate.
Bonds are popular because they’re less risky than stocks and provide consistent income through coupon payments. But returns from bonds have significantly trailed other asset classes in recent years.
Pros and Cons of Bonds Investing
|Bonds are less volatile than stocks.||Because stocks are riskier, bonds provide inferior returns over time.|
|Bonds are ideal for short-term savings goals like a house down payment or vacation.||Unlike stocks, bonds are simply loans and provide no claim of ownership.|
|Consistent income through coupon payments.||Most brokers charge commissions for non-Treasury bond purchases.|
How do Bonds Work?
Companies often raise money by issuing stock or bonds. When stock is issued, the company sells off little pieces of itself in exchange for cash now. Shareholders are then entitled to portions of the company’s future profits. A stock offering usually isn’t the first choice though since new shares dilute the value of previously issued shares.
A company can also sell bonds to raise cash. Bonds don’t provide the buyer with any ownership claim but they do get paid out before shareholders in the event of a bankruptcy liquidation. If you buy a $1,000 bond with a 4% coupon and 3-year maturity from XYZ corp, you’ll pay the company $1,000 today and receive $40 in interest payments over the next 3 years. At the end of the term, the bond reaches maturity and the face value of the bond is repaid. If the face value is still $1,000, you’ll have a total of $1,120 from the investment.
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.
Frequently Asked Questions
Are bonds a good investment?
Bonds often fail to match the returns of stocks, but they’re less volatile and more suitable for risk-averse investors.
Can you lose money investing in bonds?
Yes, bonds are subject to a number of risks like inflation risk or interest rate risk. Bond prices aren’t fixed and can fluctuate based on these risks. Additionally, all bonds face default risk. For federal bonds like U.S. Treasuries, default risk is microscopically low (regardless of what Peter Schiff might tell you). For low-graded corporate and international bonds, the risk of default is much higher.
Which brokers are best for bonds?
Check out Benzinga’s list of the best brokers for bonds above.