People buy bonds as investments, similar to buying stocks. The difference, though, is that bonds are much less risky than stocks. And, while both can be traded, bonds usually earn less money than stocks do.

Bonds are technically loans. They can be from the government, corporations, or municipalities (cities and towns). When you buy a bond, you are essentially loaning money to whomever you are buying the bond from. In return, they pay you a fixed amount of interest over a certain period of time. You get your money and the interest it has earned when the bond matures.

Bonds can also be bought and sold at any time without penalty; you don't have to wait until they mature.

On the next page, we'll explore the different types of bonds.