Basics

Fixed income investments get their name because they're usually designed to generate a specific, or "fixed," level of interest income. In general, these are the types of fixed income investments:
  • Individual bonds 
  • Certificates of deposit (CDs)
  • Preferred securities
  • Bond mutual funds and bond ETFs
Whether your goal is to diversify your investments, save for the future, receive dependable income, or minimize taxes, fixed income investments may have a place in your portfolio. The benefits of fixed income investing include:

  1. Diversification: Adding bonds to a stock portfolio can help lower the portfolio's volatility over time.
  2. Capital preservation: Bonds typically have a stated maturity date when the principal is expected to be repaid. As a result, bonds are designed to help protect principal, which can be useful to those trying to save capital for a known future expense, such as buying a home or paying for college tuition.
  3. Income: Fixed income securities are typically designed to provide a regular stream of interest payments on known dates. By creating a portfolio of fixed income investments, you're trying to generate a predictable stream of income, often to help supplement your existing income or create one in retirement.
Whether you plan to build your own fixed income portfolio or have it professionally constructed, understanding the steps involved can help you feel more informed moving forward.

  1. Define a goal: Start by clarifying your reasons for adding fixed income to your portfolio: Is it to help preserve capital, diversify your portfolio, or generate income?
  2. Choose an allocation: By combining bond investments with varying maturities and credit ratings, you can create fixed income portfolios that align with various levels of risk and are designed to meet different financial goals.
  3. Select ways to invest: Once you’ve defined your allocation, consider the ways in which you might invest. There are a variety of ways to invest in fixed income (e.g., individual bonds and CDs, bond mutual funds and ETFs, or managed accounts).

Charles Schwab benefits

Schwab provides unbiased help and advice from its highly experienced team of Fixed Income Specialists. You will have a wide selection of bonds, bond funds and ETFs, CDs, preferred securities, and managed accounts from which to choose. And our pricing is low and straightforward, so you keep more of your money.

Individual bonds

Pricing

New bond issues

$0

Treasuries (new issues and secondary trades)

Treasury bills
Treasury notes
Treasury bonds
Treasury inflation-Protected Securities (TIPS)

$0

Broker-assisted trades:
Online fee plus $25

Secondary trades
Corporate bonds
Municipal bonds
Government agencies
Zero-coupon Treasuries (including STRIPS)

$1 per bond online
$10 minimum
$250 maximum online
Broker-assisted trades:
Online fee plus $25

Large block transactions (orders of more than 250 bonds) may be eligible for special handling and pricing. Please call us at 877-786-4074 for information (Monday–Friday, 8:30 a.m.–6:00 p.m. ET).
CDs (Certificate of Deposit) Pricing

$1,000 minimum required and $1,000 increments per investment

$0*

Secondary trades

$1 per CD online
$10 minimum, $250 maximum online
Broker-assisted trades:
Online fee plus $25


 

BOND FUNDS

Pricing

Funds in Mutual Fund OneSource® service

$0 transaction fee
no loads
Broker-assisted trades:
Online fee plus $25

Funds outside Mutual Fund OneSource service

$76
Broker-assisted trades:
additional $25

BOND ETFs

Pricing

Schwab ETFs™ in your Schwab account or Schwab ETF OneSource™

$0 transaction fee, $0 commission

Broker-assisted trades:
$25

Third-party ETFs

$8.95 online

$5 automated phone trades

Broker-assisted trades:
additional $25

PREFERRED STOCKS/SECURITIES AND REITs

Pricing

Preferred stocks and REITs

$8.95 online
(Minimums may apply for secondary trades)
$5 automated phone trades

Broker-assisted trades:
additional $25

Fixed Income Specialists

When you want more personalized assistance with pricing, need answers to your bond investing questions, or want to sell bonds from your portfolio, it’s appropriate to call a Fixed Income Specialist. They work directly with our trading desk to locate hard-to-find issues.

Through our trading desk, they can also seek better prices on large block trades or securities with specialized criteria by contacting other firms with which we have a relationship.

Bonds

Bonds are issued to raise money. Cities, states, the federal government, government agencies, and corporations issue bonds to raise capital for purposes such as building roads, improving schools, opening new factories, and buying the latest technology. When you invest in a bond, you become one of the bond issuer's lenders. In fact, the bond is like an IOU—a promise from the borrower to pay back the money you've loaned, with interest.
Bonds can be purchased as new issues in the primary market or from previous owners in the secondary market. The primary market is where newly issued securities are sold (through underwriters and other dealers) to investors by the issuer, such as the U.S. government, a municipality, a government agency, or a corporation. When you buy a new issue in the primary market, you pay the new-issue offering price, which is the same for all buyers. In the secondary market, previously issued bonds are traded between dealers and investors, including institutions. Security prices are allowed to float at prices set by the market.

If you are considering buying a bond, you can search both primary market and secondary market offers to look for a bond that meets your objectives. If you need to sell a bond you hold, call a Fixed Income Specialist at 800-626-4600, and we will request bids on your bond from multiple dealers and show you the best price Schwab can find.
When you buy a bond, the return (yield) you are quoted takes into account the bond's annual interest rate and any difference between the purchase price and the amount you're expected to receive upon maturity or issuer call (typically the "par," or face, value).

Interest payments generally account for the bulk of a bond's return and are based on the bond's coupon rate—a rate that is usually fixed for the life of the bond (although some bonds have variable rates). The amount of interest a bond pays is largely determined by the prevailing interest rate environment along with factors specific to that bond.
  • When a bond's price moves up or down, it still pays the same interest to the holder.
  • Annual interest payments are calculated by multiplying the bond's face value by the coupon rate. Payments are generally made in semiannual installments.
  • A bond's coupon rate can differ from the bond's yield to maturity (YTM). If the bond sells at a premium price (over par), the coupon will be greater than the YTM. If a bond sells at a discounted price (below par), the bond's YTM will be greater than the coupon.
  • Credit rating: A bond's interest rate reflects the issuer's credit risk (often based on an opinion issued by a credit rating agency about a bond issuer's ability to make interest and principal payments) relative to other bonds. Generally, the lower the credit rating, the higher the interest rate, because investors expect extra compensation for assuming greater risk.
  • Maturity: Generally, the longer the maturity, the higher the interest rate. Investors expect to earn more on longer-term investments because their money is committed for a longer period of time and unavailable for new investments.
Bond laddering is a strategy that can help minimize exposure to interest rate fluctuations. Instead of buying bonds that are scheduled to come due during the same year, you purchase bonds that mature at staggered future dates. See how bond laddering can help you achieve your financial goals.
Choose the type of bonds that are right for you, such as Treasuries, municipals, corporates, or CDs with staggered maturity dates.

As each bond or CD matures, reinvest the principal in new bonds with the longest term you originally chose for your ladder.

If interest rates move higher, you can reinvest at higher rates. If rates fall, you'll still have some bonds locked in for the longer term at higher yields.

Here's an example of how a ladder works.

Ladder two years from today

Example of how a bond ladder works. How a bond ladder works: 2 years from today Years to Maturity 0 2 4 6 8 10 Bond A Matured 2% Yield Bond B 2.5% Yield Bond C 3% Yield Bond D New Bond 3% Yield

In two years, when Bond A matures, you reinvest the proceeds in a new bond, extending your ladder. You can continue to do this as bonds mature in the future.


Certificates of deposit (CDs)

Both quotes and order placement are available 22 hours a day, seven days a week (not available from 2 a.m. to 4 a.m. Eastern time). Orders placed outside market hours will be executed the next market day, if the offering is still available.

Minimum investment: To purchase a CD in your Schwab brokerage account through Schwab CD OneSource, the minimum amount you’ll need is $1,000. You can increase your CD investment in $1,000 increments. Before you can place your order, you’ll need to have the full purchase price in the form of cash on deposit in your Schwab brokerage account.

Like bank CDs, CDs purchased in your brokerage account through Schwab CD OneSource earn a fixed rate of interest (if held to maturity) over a set period of time and are from FDIC-insured banks. Plus, CDs can now be purchased at your convenience, 22 hours a day, seven days a week. Other benefits you won't get for CDs at other banks include:

Competitive rates and no fee: Schwab CD OneSource offers you a virtual one-stop marketplace for CDs, with competitive rates, all in one convenient location. Use Schwab CD OneSource to easily compare CDs by yield, maturity, and institution. Also, there are no hidden fees for most CDs, and there is no additional charge when you buy through Schwab CD OneSource. This is because the deposit institution itself pays Charles Schwab & Co., Inc. a fee for distributing its CDs.

FDIC-insured for $250,000: If you purchase CDs directly from one bank, you're only insured up to $250,000 total for CDs held in a bank account (or $250,000 per bank for CDs held in an IRA). One strategy to increase FDIC coverage is to buy CDs from multiple banks through Schwab CD OneSource. CDs purchased through Schwab CD OneSource carry the same amount of FDIC insurance per bank.

Choice and control: Because we screen CDs from hundreds of institutions throughout the U.S., you don't have to comparison shop from bank to bank. Schwab CD OneSource offers you a selection of CDs, making it easy to search for the rate and maturity that meet your needs. Additionally, your CDs are held in your Schwab brokerage account, not at the issuing institution, allowing you to see your whole financial picture and manage your investments in one place.

Notification of maturity: Schwab will send you a reminder when your CD reaches maturity, asking how you would like us to handle your CD funds. If you want to roll over the CD, perhaps choosing a different institution with a different interest rate, simply call us or go to Schwab.com to see what's currently available.

We'll help you sell the CD at the current market rate by requesting bids on your CD and contacting you with the highest one. If you decide to sell, you'll receive the bid price plus any accrued interest. There are no guarantees that you'll get what you originally paid for the CD. However, you won't pay a penalty for early withdrawal with a CD you buy from Schwab.
All CDs in Schwab CD OneSource are offered by FDIC-insured banks. The amount insured by the FDIC is $250,000 per depositor per insured bank. Each CD you purchase from a different institution is FDIC-insured in aggregate based on ownership type at that bank. For example, if you own two CDs, one purchased for $250,000 from one bank and the other for $250,000 from a second bank, and you have no other deposits at those banks, you’re covered for $500,000.

New-issue municipal bonds

Most information about an offering can be found in the Preliminary Official Statement (POS). You may also call a Schwab Fixed Income Specialist at 877-906-4670, between 8:30 a.m. and 6:00 p.m. ET.
The New Issue Calendar is updated daily with available bond offerings.
Final price and issue details are available when a bond offering undergoes final pricing and bonds are allocated. All price and offer details are subject to change prior to the final pricing of each offering. If the price changes between the order period and the final pricing, customers with orders will be notified by email or phone as to the change in the bond terms and given an opportunity to cancel their order.
The cost for a new-issue municipal bond is the offering price. This price includes a selling concession (paid to Schwab) and is the same price you see on the calendar. There are no additional commissions or markups. The minimum lot size for a new-issue municipal order is five bonds, or a face value of $5,000.

We're here to help

Clients of independent investment advisors: You may also contact your advisor or call Schwab Alliance at 800-515-2157.