A premium bond is a bond that is priced higher than its par value. This happens because the interest rate on the bond is higher than the interest rate prevailing in the market. This explains why the premium bond is priced higher.
Sources of Premium Bonds:
1. Premium bonds can be bought from sources like full-service brokerages that provide a variety of services to their clients. They charge a higher commission.
2. You can buy premium bonds from a discount brokerage. They charge a reduced commission fee compared to a full-service brokerage, but provides no investment advice.
3. You can buy premium bonds from a bond broker. Although they are another good source, most bond brokers insist on a minimum initial deposit of $5,000.
4. A cheaper way of investing in premium bonds is by investing in a bond fund floated by a mutual fund.
5. Financial institutions and banks can buy government bonds or securities on your behalf.
6. I bond is an inflation-indexed savings bond. It offers a fixed rate of return plus an inflation premium. I bonds can be bought from many financial institutions.
7. I bonds may also be bought from your employer's payroll savings plan.
8. I bonds can be bought online, through TreasuryDirect.
9. You can buy treasury inflation-protected securities, or TIPS, in the form of an individual bond, an exchange-traded fund, or a mutual fund. The Treasury Department uses the Consumer Price Index, or CPI, as a guide to adjust the principal for inflation on a semiannual basis. Newly issued TIPS bonds are bought at Treasury auctions through sources like the government Web site TreasuryDirect.gov or through a broker.
10. Corporate bonds are routinely sold before maturity. On the secondary market you may find some premium bonds issued by corporations.
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