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How to Invest in Bonds in Canada [2024]

how to invest in bonds in Canada
Marko Marjanovic

Summary: Investing in bonds in Canada can be a wise and conservative way of ensuring some long-term profits, as it allows you to receive consistent payments while also helping you diversify your portfolio and giving you a chance to invest in other assets, too. To purchase bonds conveniently, investors can register an account at online brokerages like Interactive Brokers.

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What are bonds?

How do bonds work?

By investing in bonds, you lend money to the body that issued them. In turn, they provide you with regular payments called coupons, usually on a biannual basis. Eventually, the investor receives their principal investment back and makes a profit due to interest rates that apply to the individual coupon.

Some factors you need to take into account when investing in bonds include:

  • The issuer: The body that issued the bonds (usually a company or a government);
  • Coupon rate: The coupon rate is the interest rate the investors receive;
  • Face value: The price or worth of the bond when it reaches maturity;
  • Maturity date: The predetermined date at which the issuer is expected to pay the face value;
  • Market price: The current price of the bond as traded in the market.

Different types of bonds

There are several types of bonds, including:

  • Government bonds: Bonds are issued by the Canadian Government. These are the least risky of all types of bonds;
  • Municipal bonds: Bonds issued by a province or city government;
  • Corporate bonds: Bonds issued by corporations, companies, and businesses.

How to invest in bonds in Canada?

Investing in bonds in Canada can be done through a bank, credit union, or via an online exchange platform like Interactive Brokers

How to buy bonds in Canada: Step-by-step

Thanks to widely accessible online exchange platforms, investors now have a chance to invest through a user-friendly interface and enjoy tons of customizable features that can help them make the most of their investment strategy.

To start investing in bonds in Canada, you can take the following steps:

Step 1: Select a broker

The first step in any investment is finding a reputable, licensed broker. If you are just starting your investment venture and are not sure what kind of broker you should look for, consider factors such as:

  • Reputation: Only trust brokers that can prove they’ve been by bodies such Financial Conduct Authority (FCA), National Futures Association (NFA), Financial Industry Regulatory Authority (FINRA), etc.;
  • Fees and commissions: The lower the fees, the luckier you are. However, be careful not to fall for advertising campaigns that sound too good to be true;
  • Range of offerings: As you grow as an investor, you’ll start to appreciate a wider range of financial products on offer (e.g., mutual funds, exchange-traded funds (ETFs), and options);
  • Customer support: Should you ever get lost in all the intricacies of the market, helpful customer support will be of utmost value;
  • Security: You are investing money, so digital security should be your top priority.

Where to buy bonds in Canada

Our recommended broker is Interactive Brokers (IB). IB is a safe online exchange with a solid track record and over 2 million registered users trading daily. It holds licenses issued by The US Securities and Exchange Commission SEC), National Futures Association (NFA), and Commodity Futures Trading Commission (CFTC). In addition, the platform offers:

  • Commission-free trading and no mark-ups;
  • 4.58% interest on cash balances of $10k or more;
  • Over 1 million bonds available;
  • Support 200+ countries;
  • Trading with other IB users;
  • No minimum deposits;
  • Lowest financing rates for margin accounts.

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  • Highly trusted multi-asset broker with clients in over 200 countries

  • Trade on 150 markets globally from a single platform (stocks, ETFs, futures, currencies, crypto & more)

  • Low commissions starting at $0 with no platform fees or account minimums

  • Easily fund your account and trade assets in 26 currencies

  • IBKR pays up to 4.58% interest on cash balances of $10k or more

Up to 4.58% interest on balance*

Step 2: Decide how much you want to invest

Deciding how many bonds you should buy will depend on your investment goals and, more importantly, your current financial situation. To get a clear picture of how large a portion of your funds you should allocate to bonds, it would be wise to:

  • Figure out why exactly you are investing — is it just to diversity, are you trying to ensure some passive income, etc.;
  • Assess your risk tolerance, as knowing what you’re getting yourself into is crucial if you want to avoid unpleasant mistakes down the line;
  • See what your investment horizon is (bonds are a long-term investment, so they won’t help you if you’re seeking quick gains);
  • Analyze the state of your portfolio — pouring all your capital into a single asset is never a good idea.

Step 3: Deposit funds into your account and start trading

Most exchanges nowadays allow users to transfer funds from their bank accounts directly. However, you can also use third-party payment solutions, like PayPal (PYPL), or Canadian payment services, such as Interac e-Transfers.

Once you’ve got funds in your account, you can start buying bonds. With Interactive Brokers, simply:

  1. Go to the Interactive Brokers website and log in;
  1. Apply for permission to purchase bonds (search for “Request Trading Permission” in the search bar and then click on the Bonds selection);
  1. Once you’ve been approved, look for bonds you are interested in by using the IB Bond Search tool;
  1. Specify the number of bonds you want to buy;
  1. Submit the trade.

Pros and cons of investing in bonds in Canada

Pros

Pros

  • Low volatility: Bonds are less volatile than something like stocks;
  • Little connection with the stock market: Since bonds are not dependent on the stock market, the value of a bond issued by a company often remains the same even if its stock drops;
  • Liquidity: You can easily sell bonds if they’re issued by the Government or a respectable company;
  • Great for diversification: Bonds are low-risk investments. That makes them great for portfolio diversification.
Cons

Cons

  • Low interest rates: More stability and low risk means less income;
  • Inflation risk: While not dependent on stocks, bonds are not immune to inflation;
  • Credit risk: There is always a chance the issuer won’t be able to pay back the principal investment.

Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.

FAQs about how to invest in bonds in Canada

How to invest in bonds in Canada?

To buy bonds in Canada, research what kind of bonds you want to buy, register an account with a respectable online brokerage, and place your trades.

Where to buy bonds in Canada?

You can buy bonds in Canada at regulated online brokerages such as Interactive Brokers.

What are the best bonds in Canada?

Deciding what bonds to buy in Canada will depend on many factors, but government-issued bonds are typically considered the safest. 

Is buying bonds in Canada a good idea?

Whether bonds are a good investment option will depend on your investment goals and preferences. Bonds are usually for those looking for steady long-term passive income.

Best Platform for Worldwide Stock Trading & Investing

  • Highly trusted multi-asset broker with clients in over 200 countries

  • Trade on 150 markets globally from a single platform (stocks, ETFs, futures, currencies, crypto & more)

  • Low commissions starting at $0 with no platform fees or account minimums

  • Easily fund your account and trade assets in 26 currencies

  • IBKR pays up to 4.58% interest on cash balances of $10k or more

Up to 4.58% interest on balance*

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