Are premium bonds a good investment?

I am not exactly certain what you mean by "premium". If you are using the term to refer to bonds selling at a premium to their redemption value, you need to be very careful about investing in such bonds. You will be redeemed for less than you paid for them. Now if they are municiple bonds, that may not be so bad because the interest is tax free but the captial loss is tax deductable. If the interest rate is good and the call provision is not terrible, they might be a sound investment. However, if you pay a premium for a 20 year bond that is called next year, you will suffer a substantial loss. All bond houses will tell you what the return is to the call date. Pay very close attention to that.

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