Bonds

A bond is a debt instrument that a government or a company issues to raise money. It is a contract between a government or a company acting as the borrower and investors acting as the lender.

When you buy a bond, you lend money to the government or company that issued the bond, and in return, the government or company that issued the bond agrees to pay your money back, with interest, at some point in the future.

Think of it this way. When you buy a house, a bank creates a contract—a mortgage in this case—wherein the bank lends you money, and you agree to pay the bank back, with interest, at some point in the future. With a bond, you are like the bank, the government or company is like the home buyer, and the bond is like the mortgage contract.