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One of the core differences between a cash and surety bond is the number of parties involved. The cash bond involves two parties and a surety bond has three parties bonded.

As I see it, bonds aren't a good investment. Interest rates are lower than they should be, and if rates rise and inflation picks up, bonds will take a beating. Basically, you've described the situation investors face not just today but all the time and with all investments, whether they realize it or not.

The interest generated by bond funds is typically calculated daily, but paid out to investors monthly. The income from taxable bond funds is generally taxed at the federal and state level at ordinary income tax rates in the year it was earned.

Bonds generate income which may be taxable. Interest on corporate bonds is taxable, but some government bonds may be exempt from certain taxes. For example, Treasurys are free from state and local taxes, but you will owe federaltaxes.

Because savings bonds are backed by the U.S. federal government, these bondsare considered to be one of the safest investments available. They provide a steady stream of interest income while preserving the value of your principal.

The Advantages of Tax Exemption. Under present federal income tax law, the interest income you receive from investing in municipal bonds is free from federal income taxes. In most states, interest income received from securities issued by governmental units within the state is also exempt from state and local taxes.