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What Is a Citizen Bond?

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  • Written By: Jim B.
  • Edited By: M. C. Hughes
  • Last Modified Date: 29 October 2014
  • Copyright Protected:
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    Conjecture Corporation
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A citizen bond is a type of investment opportunity designed to allow citizens to help their local municipalities raise money while also getting some benefits in return. These bonds are issued without a certificate and, unlike many other locally-issued bonds, may be included in a stock exchange and reported in financial papers. They are used for necessary expenditures on a community or state level, and are generally safe investments because of the financial wherewithal of the municipalities involved. In addition, there is generally an oversight committee chosen to make sure whether the funds being raised by a citizen bond are being properly administered for their intended projects.

There are times when a community or larger municipality needs to raise funds from its citizens. This can come because there is infrastructure work that needs to be done or because a sudden need arises, perhaps caused by some unforeseen event like a weather disaster. Citizens wishing to help out may not be able to donate hard-earned funds without the promise of something in return. That is why the financial instrument known as a citizen bond can be effective.

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When a municipality of some sort decides that it will issue a citizen bond, it doesn't need to print up paper certificates. Instead, the buying and selling of the bond is recorded by a centralized exchange and is handled by brokers and financial institutions. Since they are located on an exchange, the prices of these bonds may also be listed in financial publications.

As is the case with other bonds, a citizen bond is issued in a variety of increments and term lengths. Investors in the bond may decide how much principal they want to loan to the municipality and how long they wish their bond to last. In return, the investors will receive interest payments, which are based on interest rates stipulated at the beginning of the bond agreement, as well as the eventual return of their principal. The interest rates tend to rise along with the duration of the bonds.

One other distinguishing characteristic of a citizen bond is the oversight attached to it. This oversight usually is performed by a committee dedicated to making sure that all funds raised by the bond issuance are properly used for the stated intent. The committee essentially acts as a liaison between the community and the citizens who invested, ensuring that there is no doubt that the funds are helping with necessary expenditures. In this way, citizens can help their communities and improve their financial standing in the process.

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