Table Of Content
Ways to Invest in Corporate Bonds
There’s no one-size-fits-all method—how you invest depends on how involved you want to be. Here are the main common approaches:
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Buy Individual Bonds Through a Brokerage
If you know what companies you want to invest in, buying bonds directly through a platform like Fidelity or Charles Schwab gives you control.
For example, you could purchase a 5-year bond from Apple that pays a fixed interest rate.
This is ideal if you're managing your own retirement portfolio and want predictable income from specific companies.
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Buy Bond Mutual Funds or ETFs
If you prefer diversification, corporate bond funds might be a better choice.
For example, a fund like the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) spreads your investment across hundreds of companies.
It’s a hands-off way to get exposure to corporate debt, perfect for passive investors who want steady returns without researching individual bonds.
Feature | Individual Bonds | Bond Funds/ETFs |
|---|---|---|
Control | High (choose issuer, term) | Low (pooled investments) |
Diversification | Low (unless buying many) | High (spread across issuers) |
Interest Payments | Fixed schedule | Varies, often monthly |
Liquidity | Lower (may not resell easily) | High (can sell ETF shares anytime)
|
How to Buy Corporate Bonds Through a Brokerage
Buying corporate bonds through a brokerage account is one of the most direct ways to invest in fixed-income securities.
Here’s how to do it step by step—broken down in plain language, with examples to make it easier to understand.
Step 1: Choose a Brokerage That Offers Bond Trading
First things first—you need a brokerage account that actually lets you buy individual corporate bonds, not just bond funds.
Fidelity, Charles Schwab, and E*TRADE are solid options that offer large inventories and live pricing tools.
For example, let’s say you're interested in a 3-year bond from a major utility company with a fixed interest rate—you’ll want a platform where you can find and buy that exact bond without calling someone or paying extra.
Broker | Annual Fees | Best For |
|---|---|---|
E-Trade | 0% – 0.35%
0% on stocks and ETFs in self directed brokrage, 0.35% for Core Portfolio Robo Advisor
| Options & Futures Trading |
Interactive Brokers | 0% – 0.75%
$0 online commission on U.S. listed stocks and ETFs, Options: $0.15 – $0.65 per-contract, Futures: $0.25 – $0.85 per-contract. For Interactive Advisors: asset-based management fees of 0.10% to 0.75% | Professional Trading Tools |
Fidelity | 0% – 1.04%
Fidelity Go® Robo advisor: $0: under $25,000, 0.35%/yr: $25,000 and above
Fidelity® Wealth Management dedicated advisor: 0.50%–1.50%
Fidelity Private Wealth Management® advisor-led team: 0.20%–1.04%
| Retirement Account Investing |
Vanguard | Up to 0.30%
$0 online commission on U.S. listed stocks, mutual funds and ETFs, options: $0.65 per-contract, Vanguard Digital Advisor – 0.015%, Vanguard Personal Advisor: 0.03%, Vanguard Personal Advisor Select: up to 0.03%, Vanguard Wealth Management: up to 0.03% | Low-Cost ETF Investors |
J.P. Morgan Self Investing | $0
$0 online commission on U.S. listed stocks and ETFs and $0.65 per-contract | Chase Bank Customers |
Charles Schwab | Up to 0.80%
$0 online commission on U.S. listed stocks, mutual funds and ETFs, options: $0.65 per-contract, Schwab Intelligent Portfolio – 0%, Schwab Intelligent Portfolios Premium – One-time planning fee: $300 + Monthly advisory fee: $30, Schwab Wealth Advisory: up to 0.80% | Advanced Trading Tools |
Merrill Edge | 0.45% – 0.85%
0.45% for Merrill Robo Advisor (Guided Investing), 0.85% for Investing With An Advisor | Bank of America Clients |
Step 2: Use a Bond Screener to Narrow Your Options
Once your account is set up, use the bond screener tool to filter through the thousands of available bonds. You can sort by credit rating, maturity date, interest rate (coupon), sector, and issuer.
Let’s say you’re risk-averse and want something safe: you might search for investment-grade bonds with maturities under 5 years.
But if you’re okay with a little more risk for higher returns, you might explore high-yield corporate bonds instead. Think of it like online shopping—but for income-producing investments.
Rating Agency | Grade | Risk Level | Example Issuer |
|---|---|---|---|
S&P | AAA | Lowest risk | Microsoft |
Moody’s | A | Low risk | Johnson & Johnson |
S&P | BBB | Moderate risk | Ford Motor Co. |
Fitch | BB or below | High (junk status) | American Airlines |
Step 3: Understand What You Buy
Every bond listing has details you’ll want to check: who’s issuing it (e.g., Coca-Cola), the coupon rate (how much interest you’ll earn), maturity date, and current price.
Don’t just look at the interest rate—check whether the bond is trading above or below face value.
For instance, buying a bond at $1,010 that only pays back $1,000 means your real return is slightly lower unless you hold it to maturity.
Also look at the credit rating—Moody’s or S&P will usually tell you how risky the company is.
Step 4: Place Your Order
Now that you’ve found a bond you like, it’s time to buy. Most bonds are sold in $1,000 chunks, so if you want $5,000 worth, just type in “5” as your quantity.
You can buy from the secondary market (someone else is selling it) or get in on a new issue, depending on availability.
Before you hit “submit,” your brokerage will show you the total estimated cost—including any markups or fees. Always double-check the “estimated total” before confirming the order so there are no surprises.
Things to Consider When Buying Corporate Bonds
Before you jump into buying corporate bonds, take some time to understand the product, the company behind it, and how it fits your overall strategy. Here are key tips to guide you:
Know what type of bond you’re buying: Not all corporate bonds are alike. Some are callable (can be paid off early), some are secured (backed by assets), and others are subordinated (lower repayment priority).
- Check the credit rating: Always review ratings from Moody’s, S&P, or Fitch. Investment-grade bonds (e.g., A or BBB) are safer, while lower-rated bonds may pay more but carry higher risk.
Research the company’s financial health: Don’t just rely on ratings. Look into the issuer’s balance sheet, cash flow, and debt levels.
Review the bond’s terms carefully: Before buying, check details like maturity date, coupon rate, payment schedule, and whether it's callable.
Use trusted sources to verify data: Sites like FINRA’s Bond Center or Morningstar offer free tools to dig into bond pricing, ratings, and issuer information.
Match the bond to your goals: Are you saving for a home in 3 years or building retirement income? Shorter bonds may suit near-term goals, while longer-term bonds can lock in higher yields if you plan to hold.
- Know the tax implications: Corporate bond interest is taxed as ordinary income. If you're in a high tax bracket, consider placing them in tax-deferred accounts like IRAs.
Best Brokers to Buy Corporate Bonds
Here are some of the top platforms for buying corporate bonds as a retail investor:
Fidelity: Known for its powerful bond screener and access to over 100,000 secondary market offerings. Fidelity also offers new issues with no markup or commission.
Charles Schwab: Offers a solid platform with filters by rating, maturity, and yield. Schwab also provides new issue offerings and research tools for deeper analysis.
E*TRADE: Good for active investors. It offers customizable screeners and real-time pricing, plus access to both corporate and municipal bonds.
Interactive Brokers: Great for global investors. IB provides access to corporate bonds across international markets with competitive pricing.
Vanguard: Ideal for those focused on long-term investing. Vanguard offers a simple interface and solid access to investment-grade corporate bonds.
FAQ
Bondholders are ahead of stockholders in line during liquidation, but you still might recover only a portion of your investment, or nothing at all.
Most corporate bonds pay interest every six months, though some may pay quarterly or annually depending on the terms.
A callable bond allows the company to repay it early. This can be a downside for investors if interest rates fall and your bond gets paid off too soon.
Yes, you can hold them in IRAs, 401(k)s, and other retirement accounts, which can help defer or reduce taxes on interest income.
Yes, interest from corporate bonds is taxed as ordinary income, which may be higher than capital gains tax rates.
Yes, you can sell it on the secondary market. But the price may be more or less than what you paid depending on market conditions.
They can be. ETFs offer instant diversification and are easier to trade, which might appeal to those who don’t want to pick individual bonds.
