We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Finance

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

What Is a Refunded Bond?

Malcolm Tatum
By
Updated: May 17, 2024
Views: 4,956
References
Share

Also known as prefunded bonds, refunded bonds are any type of bond issue in which the funds needed to settle the bonds are already set aside by the original issuer. Typically, the funds needed to take care of that principal amount due on the issued bonds are held in an escrow account, often earning some interest that can eventually go to offset the interest payments made to the bond holders. Considered among the most secure of all bond issues, the refunded bond is usually granted a high rating and serves as a very safe investment for even the most conservative of investors.

With a refunded bond issue, the funds needed to cover the principal paid in by investors is placed into some type of escrow account. An account of this type is held by a third party, often an escrow agent, who has no direct interest or claim on the bond issue involved. The funds deposited in the account are held until the bond issue matures or is called early for some reason, including bankruptcy of the issuer. At that point, the funds can be used to repay or refund the principal investment to the investors, helping to ensure that they at least do not sustain a loss from the venture.

It is important to note that a refunded bond is among the safest investments available. This typically leads to the bond issue being rated highly, both for the low risk involved and the reasonable returns that investors can anticipate to receive. Since enough money is held by an escrow agent or other third party that is authorized to disburse the funds only under specific conditions, investors can rest easy that even if the bond issuer undergoes some sort of financial crisis, up to and including bankruptcy, that initial investment is protected and will be returned.

Brokers and dealers who work with bond issues can assist investors in identifying and evaluating refunded bond issues that are currently available. As with any investing activity with bonds, it is a good idea to determine the financial stability of the issuer, compare the projected returns with similar investment opportunities, and make sure the provisions associated with the purchase of the refunded bond issues are acceptable to the investor. This will further protect the interests of the buyer, since issuers that are financially solvent are less likely to default and leave the investor with little to no profits from the investment.

Share
WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Link to Sources
Malcolm Tatum
By Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including WiseGeek, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.

Editors' Picks

Discussion Comments
Malcolm Tatum
Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
Learn more
Share
https://www.wisegeek.net/what-is-a-refunded-bond.htm
Copy this link
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.