Fixed-Rate Bonds: What They Are, How They Work, and Whether They're Worth Investing In

Introduction

Fixed-rate bonds are among the most sought-after investment options for those looking for security and predictable returns. Unlike floating-rate bonds, which are tied to variable indices, fixed-rate bonds offer a fixed return that is determined at the time of investment.

But is investing in fixed-rate bonds always a good choice? What are the risks involved? How can you choose the best fixed-rate bond for your portfolio?

In this article, we’ll answer these questions and more, explaining what fixed-rate bonds are, how they work, their advantages and disadvantages, and essential tips for investing strategically.

What Are Fixed-Rate Bonds?

Fixed-rate bonds are fixed-income investments where the interest rate is determined when you invest. This means you know exactly how much you will receive at the end of the term.

This type of investment is ideal for those who want security and predictability since it doesn't fluctuate with changes in the economy. However, it can pose a risk if inflation or interest rates rise during the investment period, as the return remains fixed.

How It Works:

Let’s say you invest R$ 10,000 in a fixed-rate bond with an interest rate of 10% per year for 3 years. At maturity, you will receive:

📌 Calculation:

R$ 10,000 + (10,000 × 10% × 3 years) = R$ 13,000

This return is guaranteed, regardless of fluctuations in the Selic rate, inflation (IPCA), or other economic indicators.

Main Types of Fixed-Rate Bonds

Fixed-rate bonds can be found in various investment types. Below are the main types available on the market:

1. Treasury Fixed-Rate Bonds
   These are government-issued bonds with a fixed interest rate determined at the time of purchase. They can be redeemed at maturity or earlier (with a risk of loss if the market is unfavorable).

   ✅ Advantages:
   ✔ Security backed by the federal government
   ✔ Guaranteed return at maturity
   ✔ Options for semi-annual interest payments

   🚫 Disadvantages:
   ❌ Losses possible if redeemed before maturity due to market value fluctuations
   ❌ Does not protect against inflation

2. CDB Fixed-Rate Bonds
   Bank-issued Certificates of Deposit (CDBs) can also offer fixed returns. Generally, the longer the term, the higher the interest rate.

   ✅ Advantages:
   ✔ Higher rates than Treasury Fixed-Rate Bonds, depending on the bank
   ✔ Covered by the Credit Guarantee Fund (FGC) up to R$ 250,000 per CPF and institution

   🚫 Disadvantages:
   ❌ Lower liquidity – some require you to hold the investment until maturity
   ❌ Subject to income tax based on the regressive table

3. LCIs and LCAs Fixed-Rate Bonds
   Real Estate Credit Bills (LCIs) and Agribusiness Credit Bills (LCAs) offer fixed returns and benefit from tax exemptions for individuals.

   ✅ Advantages:
   ✔ Income tax exemption
   ✔ Protected by the Credit Guarantee Fund (FGC)

   🚫 Disadvantages:
   ❌ Reduced liquidity – often require a lock-in period before redemption
   ❌ Returns may be lower than CDBs

4. Fixed-Rate Debentures
   These are debt securities issued by companies to raise capital. Some offer fixed returns, often with more attractive rates than CDBs and Treasury Fixed-Rate Bonds.

   ✅ Advantages:
   ✔ Higher returns than most CDBs and Treasury Fixed-Rate Bonds
   ✔ Some debentures are tax-exempt

   🚫 Disadvantages:
   ❌ Higher risk – company defaults may occur
   ❌ Lower liquidity – typically requires holding until maturity

Advantages and Disadvantages of Fixed-Rate Bonds

Advantages:

✅ Predictability: You know exactly how much you will earn at maturity.
✅ Protection Against Interest Rate Drops: If the Selic rate falls, your fixed-rate investment maintains the contracted return.
✅ Safe Options: Treasury Fixed-Rate Bonds are government-backed, and CDBs/LCIs/LCAs are protected by the FGC.

Disadvantages:

🚫 Risk of Losing Against Inflation: If inflation (IPCA) rises significantly, the purchasing power of your investment may decrease.
🚫 Loss on Early Redemption: If you need to sell the bond before maturity, you could face a loss due to market value fluctuations.
🚫 Taxation: CDBs and Treasury Fixed-Rate Bonds are subject to income tax on returns.

When Is It Worth Investing in Fixed-Rate Bonds?

Fixed-rate bonds are recommended in scenarios where interest rates are expected to fall. If you believe that the Selic or CDI rate will decrease in the coming years, investing in fixed-rate bonds now can ensure good returns before interest rates drop.

Favorable Scenarios:

✔ When the Selic rate is high and expected to decrease
✔ If you want a long-term investment with fixed returns
✔ When you don’t need immediate access to your funds

Unfavorable Scenarios:

❌ When inflation is high and could outpace bond returns
❌ If you need liquidity before maturity

Tips for Choosing the Best Fixed-Rate Bond

1️⃣ Compare rates: Check which bank or broker offers the best interest rate.
2️⃣ Check maturity dates: Choose terms that align with your financial goals.
3️⃣ Assess liquidity: If you need to access funds early, prefer bonds with daily liquidity.
4️⃣ Consider inflation: If inflation is high, hybrid bonds (IPCA + interest) may be more advantageous.
5️⃣ Look for tax exemptions: LCIs, LCAs, and tax-exempt debentures are good options to avoid taxation.

Conclusion: Is It Worth Investing in Fixed-Rate Bonds?

Fixed-rate bonds are an excellent choice for those seeking security, predictability, and solid returns during periods of falling interest rates. However, it’s important to evaluate the economic scenario before investing, as rising inflation can erode the purchasing power of fixed returns.

If you're looking for a conservative investment with guaranteed returns, fixed-rate bonds can be a great option, as long as they align with your financial objectives.