Collable bonds explained

More investment risk than other types of bonds.

Callable bonds are bonds that will not necessarily meet the maturity date. That does not mean that you will not get the money that you paid for the bond back, however, it does mean that you will probably only get that money back, and no extra interest. Therefore, you should consider whether or not the callable bond is worth it before you decide to buy one.

Essentially, if a bond is callable, what that means is that the company or government that you bought the bond from is allowed to pay back the money to you early. If the money is paid early, then any extra money that you would be getting from interest will not be given to you. The other thing that will happen is that you will be getting the money immediately, which might result in problems if you are not careful with how you file your income tax. The last thing that you want to do is to have to pay taxes more than once on the money that is in your bond investment.

The reason that some people choose to go with a callable bond is that in a lot of cases, the interest for these bonds is even higher than it is for normal bonds. Therefore, if the bond is held until maturity, you will be able to get interest on the bond for as long as you hold it.

The biggest risk with a callable bond is that you will have absolutely no control over if and when the call happens. Therefore, you should make sure that if you are going to buy a callable bond, it is one that has either specific call dates, or only a few certain ranges of dates when the bond is callable. That way, you can be somewhat prepared just in case the bond is called on you on those dates. If the callable bond is called, then you will have the problem of trying to find a new investment for your money. This could result in lower rates and less successful investing for you if the call takes you by surprise.

The risk with callable bonds is also that the time at which they are callable will generally coincide with lower interest rates. This means that even if you get your bond money back and try to buy another bond from the same company, you will have lower interest rates. Therefore, callable bonds can operate much like normal bonds in which the interest rates can only go down, but not up.