What is one of the best ways to maximize your savings and earn a nice return on your money? If you think the answer is a savings account, try again! Commercial bank savings accounts are earning 0.10% and 0.20%. That is nothing. Credit unions and online banks will pay you between 1 and 2%. That’s still a pretty low return. The answer is by buying corporate bonds.

Corporate Bonds

Corporate bonds are bonds issued by companies to finance activities. These activities can be for operating purposes, debt retirement, or expansion. Bonds are a win-win for the issuer and the holder. They are a great way for companies to raise money without giving away ownership to borrowers. They provide a stable income stream for bondholders and add diversification to an investment portfolio.

The yield on long term United States treasuries have been dropping to below 3% per annum. That’s not a great yield for a 10 year security. Corporate bonds however are becoming more and more attractive. You can buy a 5 or 10 year corporate and lock in a much higher yield. Investors can currently get yields of 8% and up on investment grade corporate bonds.

Bond Ratings

How do you know what bond is the right one for you? You can check their ratings and determine which one fits your portfolio. Corporate bonds receive ratings from a number of different agencies. The three mist respected ratings agencies are Standard & Poor’s, Moody’s, and Fitch. These agencies rate bonds by the issuer’s financial statements and their likelihood of defaulting on their obligations.

For example, Standard & Poor’s uses the following ratings system. AAA rated bonds are the highest rated bonds that you can get. Bonds rated from A, AA, and AAA are relatively safe investments that have a very low risk of default. BBB rated bonds are still investment grade but have moderate credit risk. Bonds rated below BB are relegated to junk status. These are high risk high reward bonds.

Best Bonds For Your Portfolio

So, which bonds are right for you? It depends on your appetite for risk. Risky investors may find junk bonds appealing. They may be called junk bonds but they offer some of the best returns in the marketplace. High yield bonds have returned nearly 9% to investors this year. You can find some quality companies whose bonds have junk bond status. Companies like Toys “R” Us and Continental AG have recently issued junk bonds to new investors. Investors seeking safety may find investment grade corporate bonds more attractive. Surprisingly, corporate bonds have returned nearly 10% in 2010.

Individual bonds can be purchased through brokers like E*Trade, TD Ameritrade, and Scottrade. You could also purchase bonds through a bond fund. Companies like Vanguard, Fidelity, and T Rowe Price have an array of bond funds for high yield investors and corporate bond investors.