Definition
The term fixed-income security refers to investments that provide their owners with periodic payments in addition to the preservation of capital if held to maturity. Fixed-income securities provide their holders with a return that is known, in addition to providing a consistent payment schedule.
Explanation
Fixed-income securities are typically valued by investors looking for a reliable source of income as well as the eventual return of their original investment (principal). The security these investments offer their holders usually results in a lower rate of return too. Examples of fixed-income securities include:
Bonds: issued by corporations (equipment trust certificates, debentures), municipalities (general obligation and revenue bonds), as well as the U.S. Treasury (savings bonds, treasury notes and bonds); payments are made on a fixed schedule as is the return of principal.
Certificates of Deposit: a savings account that features a maturity date and entitles the holder to receive periodic interest payments.
Money Market Accounts: a low-risk investment issued by financial institutions, usually consisting of certificates of deposit, commercial paper, and government securities.
Annuities: available through a number of financial institutions, annuities guarantee a stream of income for life or a pre-established period of time.
Asset-Backed Securities: issued by both financial institutions as well as government agencies, can include mortgages, credit card debt, as well as automobile loans.
