Best Online Brokers for Bonds

Benzinga readers often choose Interactive Brokers as the best brokers for bonds, but if you're wondering why, or what some of the other options are, then keep reading as we've rounded up all of the best online brokers for bonds we've tried and tested, making it easier than ever to trade bonds from the comfort of your living room.

There are multiple brokers with a variety of bond offerings. The choice of the right broker depends on your goals. Benzinga has created a list of our top five brokers for bond traders. It is essential for bondholders to open a brokerage account that fully caters to their needs. Each mentioned broker has a distinct characteristic that distinguishes them from others.

Best Overall: Interactive Brokers

Interactive Brokers is another oasis for active traders, with a host of advanced features, customizable platforms and discounts for large movers. Bond traders can find plenty to like on Interactive Brokers as well, as long as they understand the fee structure. Commissions are percentage-based — Treasuries are 0.002% for the first $1 million ($5 min), municipal bonds are 0.05% for the first $10,000 ($1 min, $125 max), and corporate bonds and CDs are 0.1% for the first $10,000 ($1 min, $250 max).

The access to bonds provided by Interactive Brokers is highly coveted in the industry. They offer a wide range of options including government bonds, municipal bonds, and corporate bonds. The Bond Search tool allows clients to easily sort and browse the entire marketplace based on criteria such as yield, maturity, and country of origin. Interactive Brokers stands out as one of the top-rated brokers for bonds due to their extensive selection.

Best for Trading Ideas: Public.com

When you invest with Public.com, you have access to a wide variety of assets to build your portfolio. These assets include bonds, stocks, ETFs, options, and more. Additionally, there are even alternative assets available for investment. However, one investment strategy that is often overlooked is buying bonds.

When you buy into the bond market with Public, you can invest in corporate, municipal and treasury, study the market and avail yourself of educational tools that explain strategies and more. You can even enter “education mode” so that you can protect yourself as a beginner.

Best for Desktop Trading: E*TRADE

E*TRADE is the complete package for bond traders. There are about 50,000 different bonds or bond-like instruments available, including Treasury and Agency bonds, municipal bonds, corporate bonds, and high-yield junk bonds. Treasuries are fee-free at auction and on the secondary market, whereas other new offerings require a commission when sold only. Other secondary market bond trades cost $1 per bond ($10 minimum, $250 maximum).

E*TRADE also provides multiple platforms for clients, including two different mobile apps. Power E*TRADE lives up to its name by providing an abundance of charting tools, technical indicators, and research papers. If you're new to trading or just learning how bonds work, E*TRADE is a terrific place to get started.

Best for AI Investing: Magnifi

Magnifi is a marketplace where you, the investor, can use conventional brokerage tools and AI to make the best decisions for your portfolio. Because you can get all of the information you need on a certain asset, you can easily invest in the assets that will produce the returns you expect and better match your plan.

Search for the investment options that meet your needs, invest in specific categories or scan for assets in a price range that’s affordable for you as a trader.

Best for long-term investors and those who require a bit of client support, you can also learn more about investing from this platform using credit rating, utilize the AI-powered investing assistant, enjoy commission-free investing, try the mobile app and take advantage of over 15,000 possible investment options. This makes Magnifi a good place to trade for both seasoned and novice traders as they have a wide diversification portfolio.

Best for Fund Investing: Charles Schwab

Charles Schwab is one of the most-recognized brokers in the U.S.. Once the subject of a brilliant marketing campaign featuring Charles Schwab himself, hoping to engender confidence in the public, Schwab has since expanded to offer stocks, bonds, options, mutual funds, ETFs, futures, foreign stocks and robo-advisors. boasts over 31 million customers who have $8.09 trillion in assets under management.

Bonds products are designed to be affordable. Customers can benefit from premium third-party research and 24/7 customer support through various channels. Additionally, Schwab Intelligent Portfolios offers an all-digital investment advisor.

Best for Futures Trading: TradeStation

TradeStation is an advanced trading platform geared toward active investors, which doesn’t exactly sound like the typical bond market participant. Of course, that doesn’t mean TradeStation lacks bond offerings. Trading bonds is a bit pricey on TradeStation — you’ll pay a $14.95 flat fee and then an additional $5 per bond. But the fees are worth it if you plan on using the full suite of TradeStation platforms.

TradeStation offers two platforms. The first is the Desktop 10 platform for Windows operating systems. The second is the web browser version, which works on both Mac and PC browsers and includes most of the features of the Desktop version.

Need to go mobile? TradeStation mobile is available for both iOS and Android phones, and you don’t even need an account to test out the app.

Pros and Cons of Bonds Investing

Pros

• Competitive interest rates
• Portfolio diversification
• Inflation rates

Cons

• One year lock up
• Early withdrawal penalty
• Interest is taxable

How Do Bonds Function?

Companies frequently issue bonds or stock to raise capital. The corporation sells off little portions of itself when it issues shares, receiving cash up front in exchange. Following that, a portion of the business's future profits are due to the shareholders. However, since newly issued shares decrease the value of already issued shares for easier market access, stock offerings are typically not the first option.

Companies can raise cash by selling bonds. Bonds do not give the buyer any ownership claim, but they do have priority over shareholders in case of bankruptcy. For example, if you purchase a $1,000 bond with a 4% coupon and a 3-year maturity from XYZ Corp, you will pay the company $1,000 upfront and receive $40 in interest payments over the next 3 years. When the bond reaches maturity, the face value of $1,000 is repaid. If the face value remains $1,000, your total investment will be $1,120.

Types of Bonds

• Treasuries: The federal government issues bonds in the form of Treasuries, which typically are measured in durations of 3 months to 30 years. The 10-year Treasury rate is the primary interest rate used to judge inflation in the United States. When you hear financial prognosticators talking about rising rates, they’re usually talking about the 10-year Treasury or the Fed Fund rates.
• Agency bonds: These are bonds issued by the government (or government-sponsored entity) for a specific public purpose. Agency bonds are backed by the federal government and have little risk of default.
• Municipal bonds: Popular because of their favorable tax treatment, municipal bonds are issued by state and local governments for infrastructure projects like roads and schools. Municipal bonds have a higher rate of default than bonds issued by the federal government.
• Corporate bonds: Bonds issued by corporations often have the highest interest rates but also carry the biggest risk of default. The federal government has never defaulted on its debt, but public companies fail all the time and when they do, the bonds often become worthless.

Use Bonds to Pare Risk

The 60/40 portfolio may no longer be the bread and butter of the retirement industry, but bonds still have a place in most portfolios. Yes, bonds are boring and stocks provide not only better returns but the excitement of owning a little piece of a profitable company. But sometimes squeezing out every last penny of profit isn't the primary goal for an investor.

If you’re looking to minimize risk in your portfolio or earn a consistent annual income through interest payments, consider putting some bonds into your portfolio. Your investment journey can take you to retirement and beyond if you invest well with an investment advisor or research with Benzinga.

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