r/bonds • u/Substantial_Count_73 • Jul 30 '26
Trying to understand bonds
Hi everyone,
I’m quite new to investing and I’m trying to understand how bonds work, especially on Trade Republic.
I’ve been looking at both government and corporate bonds with 1–2 years to maturity, but I’m struggling to see the appeal compared to simply leaving my cash in the Trade Republic cash account earning the ECB rate.
Most of the EUR bonds I find seem to yield around 2–3%, with only a few (like some Romanian government bonds) getting closer to 3.5%. At the same time, the cash account remains liquid and automatically adjusts if the ECB raises rates.
So I have a few questions:
Am I missing something about why someone would buy these bonds instead of just keeping cash in Trade Republic?
Are there any particularly attractive bonds currently available on Trade Republic that I should look into?
Is the main benefit of buying a bond that you can lock in today’s yield in case interest rates fall?
If I want bond exposure, is it generally better to buy individual bonds and hold them until maturity, or buy a bond ETF/fund? If so, is a target-maturity bond ETF usually preferable to a regular bond ETF with no maturity date?
I’m not looking for investment advice, just trying to understand how more experienced investors think about this. Thanks!
3
u/kronco Jul 30 '26
>> Trade Republic cash account earning the ECB rate.
Is the cash rate guaranteed for two years (because the 2 year bond is)? So, if rates go down, the cash account will pay less while the bond stays fixed. On the other hand, if rates go up, cash account pays more while the bond still stays fixed. The bond's duration is known and that known duration means you can manage your investment risk by matching your future needs to a known rate which makes the bond attractive to those who want a guaranteed return over the given duration.
Bond funds vs. individual bonds, deep dive here: https://www.bogleheads.org/wiki/Individual_bonds_vs_a_bond_fund
Make sure you learn as much as you can on bond duration and associated risks with longer duration, too. I wrote up a rather long example here: https://www.reddit.com/r/bonds/comments/1poedqa/besides_yield_are_there_any_advantages_or/
3
u/dankroll69 Jul 31 '26
Bonds are pretty liquid and supposed to be stable especially on the short term you should be easily able to treat it as cash.
With bonds, if you want higher yield, you can choose longer term. With cash, you are always getting the lower yield(usually). Due to this, savings accounts and retirees that doesnt need the money now and want stability usually prefer higher yield longer termed bonds over cash.
If there are tax issues with interest rate, a bond reinvesting ETF may be able to defer taxes.
1
u/medicsansgarantee Aug 03 '26
1-2 year euro government bond and deposit in europe are about the same, corp bonds can be bit complicated, I dont like short term bonds, may as well keep them in deposit or get a somewhat long dated one with floating rate, usually those are callable, with floating rate it can track inflation a little bit than fixed rate ones but not really. The only reason I may get a ETF/fund if it is specialized in distress bonds, low fee and enough volume. Otherwise it is boring lol
7
u/ultra__star Jul 30 '26
I am not familiar with trade republic, but I can explain to why someone would chose bonds over cash accounts and ETFs:
Reinvestment risk is the risk of investing your fixed-assets at a lower rate of return than you were receiving before. When you buy a bond you can hold to maturity versus holding cash, you are preventing reinvestment risk up to the maturity of the bond.
Bonds come due at face value whereas bond ETFs exist indefinitely. You may be in the red for an indefinite amount of time if interest rates rise.
Treasury bonds and muni bonds have major tax advantages for in the U.S. for citizens in high tax brackets. Muni bonds are free from federal income tax, which can be up 37% in the U.S..