More about another interest bearing investments: bonds

Bonds are fixed-income securities that governments and companies issue in order to borrow money.  They pay interest to you for that privilege. 

The maturity date is the date on which the full amount that was borrowed is returned to you .

The investment term is normally a fairly long period, say ten years or longer.

The coupon is the interest rate you receive. 

Bonds are traded on the capital market in the same way that equities are traded on the stock market.

Bonds are medium-risk investments because the interest rate cycle has a definite impact on the value of bonds. 

If you want to understand bonds, this is the most important thing to remember:  when interest rates fall, bond prices rise; when interest rates rise, bond prices fall. 

This is simply because the coupon on the bond is fixed, and the market value of the bond is adjusted to bring the coupon in line with the external interest rate. 

Bonds are a very important part of a well-diversified portfolio.  In difficult stock markets, bonds can provide a cushion to soften the blow.