Bond investing is easy for beginners to understand.

Are you interested in starting to invest but unsure where to begin? I recommend starting with bonds. If you want higher returns than savings accounts but don’t want to face the big risks of stocks, bonds can be a really good option. In this article, I’ll explain the basics of bonds and how to invest in them in an easy way suitable for beginners.

What exactly are bonds? Let me explain simply

In short, a bond is like a promise from the government or a company saying, “We will borrow money from you.” When the government, public corporations, financial institutions, or companies need funds, they borrow money from investors and pay interest at regular intervals, returning the principal at maturity.

Simply put, it’s like borrowing money from a bank—except with bonds, you get paid back at a set time, and you’re not risking losing your principal as long as the issuer doesn’t default.

Currently (early 2026), bonds are especially attracting attention. They can offer higher yields than bank savings accounts while not fluctuating as much as stocks day-to-day. Recently, new products like ESG bonds that consider environmental and social factors, and blockchain-based digital bonds, have been introduced, offering a wide variety of choices.

5 key features of bonds that make investing easier

To understand why bonds are so popular, you should know these five characteristics:

First, stability. The better the credit rating of the issuer (government or company), the lower the risk of not getting your principal back. Especially government bonds or AAA-rated corporate bonds are almost as safe as bank savings. During uncertain financial times like now, these ‘safe assets’ are very valuable.

Second, regular income. Most bonds pay interest every 3 to 6 months. Like receiving a paycheck monthly, you get predictable cash flow. Government bonds pay about 3% annually, riskier corporate bonds around 4-5%, which is better than current bank savings (below 3%).

Third, liquidity. You don’t have to wait until maturity to cash out. Bonds can be sold anytime on the market. As of 2025, Korea’s daily bond trading volume is about 25 trillion won, so you can sell quickly if you need cash urgently.

Fourth, price fluctuations with interest rates. When interest rates fall, bond prices go up; when rates rise, prices fall. For example, if you buy a bond paying 3% interest and market rates drop to 2%, your bond becomes more attractive, and its price increases. You can potentially profit from these price changes.

Fifth, tax benefits. When investing directly in bonds, only the interest income is taxed; gains from selling bonds are tax-free. Some products like ESG bonds even offer additional tax reductions.

Bonds vs. savings accounts: which is better?

While they seem similar, bonds and savings accounts are quite different.

Savings accounts are deposits at banks, protected up to 50 million won by deposit insurance. Bonds are loans to issuers; if the issuer defaults, you may lose your principal. However, bonds generally offer higher yields, can be bought and sold freely before maturity, and you can profit from price changes.

Early withdrawal from savings accounts usually results in penalties, but selling bonds when interest rates fall can be profitable.

Types of bonds and their differences

Bonds differ based on who issues them, affecting risk and yield.

Government bonds (국채) are issued by the government and are the safest. The risk of default is almost zero, but yields are the lowest—around 3-3.5% annually now.

Special bonds (특수채) are issued by public enterprises like Korea Electric Power or Korea Expressway. Not government bonds but backed by the government, offering slightly higher yields (~4%).

Local bonds (지방채) are issued by local governments like provinces. Slightly riskier than national bonds but still considered stable.

Financial bonds (금융채) are issued by banks and financial institutions, suitable for short-term funding, with high liquidity.

Corporate bonds (회사채) are issued by companies like Samsung, LG, Hyundai. Large corporations’ bonds offer good yields (3.5-5%) and relatively high safety, but lower-rated bonds can be risky. Always check credit ratings before investing.

U.S. Treasury bonds are considered the safest globally. Many Korean investors diversify into dollar assets, with current 10-year yields around 4%.

Who should consider investing in bonds?

Bonds are especially suitable for certain investors:

• Those needing steady cash flow, as bonds pay interest regularly—helpful for living expenses.
• Retirees or those nearing retirement, seeking safer investments with better returns than savings.
• Investors wary of stock market volatility; bonds tend to move independently or inversely to stocks, reducing overall portfolio risk.
• Those interested in tax benefits, since bond interest is taxed but capital gains are not.
• Investors seeking foreign asset diversification; U.S. Treasury bonds or similar can hedge against currency risk.

Risks to watch out for when investing in bonds

Although bonds are considered stable, they are not risk-free. Here are three key risks:

First, rising interest rates. If the Bank of Korea raises rates, existing bond prices fall. For example, a bond paying 3% interest becomes less attractive if new rates are 4%, causing its price to drop. Selling in such a situation can lead to losses. To mitigate this, consider short-term bonds (1-3 years) or floating-rate bonds that adjust with rates.

Second, issuer credit deterioration. If a company’s financial health worsens, it may default, and you could lose your principal. Lower credit-rated bonds carry higher risk. To reduce risk, start with high-grade bonds like AAA or AA.

Third, currency risk with foreign bonds. U.S. bonds are traded in dollars. If the won/dollar exchange rate moves unfavorably (e.g., dollar weakens), your returns in won decrease. Using hedged ETFs or limiting foreign bonds to a portion of your portfolio can help manage this risk.

How to start investing in bonds: three methods

As of 2026, there are three main ways to invest in bonds in Korea:

First, buying individual bonds through securities firms. You can purchase government, special, or corporate bonds via apps, bank branches, or online platforms. The advantage is that interest income is taxed but capital gains are tax-free. The downside is the minimum investment amount can be large.

Second, investing in bond funds. Asset management companies offer funds that diversify across many bonds. You can start with small amounts (~10,000 won) and benefit from diversification. However, funds charge management fees (~0.5-1%).

Third, buying bond ETFs (Exchange-Traded Funds). Traded on stock exchanges like stocks, with low fees (0.05-0.2%), high liquidity, and small investment amounts. For beginners, this is highly recommended.

Conclusion: Why bonds are gaining attention in 2026

With global expectations of interest rate cuts, bond prices are expected to rise, making now a good time to invest. Bonds offer higher yields than savings accounts and less risk than stocks, making them an attractive choice. Start with safer products like government bonds or bond ETFs, then gradually diversify into corporate or foreign bonds. Even small steps can give you an advantage—by understanding bonds, you’re already ahead of many investors.