What is Fixed Income?
Have you ever heard someone say they “left their money in fixed income” and wondered what that really means? The term is common, but the concept often causes confusion—especially because “fixed income” doesn’t necessarily mean the return is a fixed number you know in advance.
Simply put, fixed income is a category of investment where the rules of remuneration are defined at the time of investment. This is different from variable income—like stocks or real estate funds—where the return depends on market performance and is only known afterward. In fixed income, you know from the start how your return will be calculated: it could be a fixed rate, an index like the CDI or inflation (IPCA), or a combination of both.
This type of investment includes well-known products like Treasury Direct, CDB, LCI, LCA, debentures, and CRI/CRA. Each has different characteristics, but all follow this logic: there is an issuer (government, bank, or company) that needs borrowed money, and you, the investor, lend this money in exchange for an agreed remuneration. In this article, we will understand how this mechanism works in practice and what you need to know before investing.
How Fixed Income Works
When you invest in fixed income, you are essentially lending money to an institution. In return, it commits to returning the principal amount—plus interest—at the end of a predetermined period (or over time, depending on the product).
This commitment is formalized by a bond. In the case of the federal government, the bond is traded through Treasury Direct. For banks, it could be a CDB (Certificate of Deposit). For companies, it might be a debenture.
The remuneration can follow three main logics:
- Fixed Rate: the interest rate is set at the time of investment. Example: “10% per year.” You already know how much you will receive if you hold the investment until maturity.
- Floating Rate: the return follows a reference index, such as the CDI or Selic. The final amount is only known upon redemption, as it depends on the index’s variation over time.
- Hybrid (or mixed): combines a fixed rate with a variable index. The classic example is “IPCA + X% per year,” common in Treasury IPCA+. This protects the investor’s purchasing power against inflation.
Main Fixed Income Products in Brazil
Treasury Direct
Treasury Direct is the federal government’s program that allows individuals to buy government bonds directly online. It is considered one of the lowest credit risk investments in the country because the issuer is the Brazilian government itself. Available bonds include Treasury Selic (floating rate), Treasury Fixed Rate, and Treasury IPCA+. To check today’s rates and available bonds, visit the official website: www.tesourodireto.com.br.
CDB (Certificate of Deposit)
The CDB is issued by banks and financial institutions. The investor lends money to the financial institution and receives interest in return. Most CDBs are floating rate and pay a percentage of the CDI—for example, “100% of the CDI” or “110% of the CDI.” The CDI is a rate that closely follows the Selic; its updated value can be checked on B3 (www.b3.com.br). CDBs have the protection of the Credit Guarantee Fund (FGC) up to R$ 250,000 per CPF per institution, with a global limit of R$ 1 million per CPF every four years.
LCI and LCA
LCI (Real Estate Credit Bill) and LCA (Agribusiness Credit Bill) are bonds issued by banks with a significant advantage: they are exempt from Income Tax for individuals. In return, they often require longer grace periods and may offer lower gross returns than a CDB. To better understand the characteristics of these two products, read our full article: LCI and LCA: What They Are and Whether They’re Worth Investing In. They also have FGC coverage under the same limits as the CDB.
Debentures, CRI, and CRA
Debentures are bonds issued by companies to raise funds. CRI (Real Estate Receivables Certificates) and CRA (Agribusiness Receivables Certificates) are issued by securitization companies. Attention: these three products do not have FGC coverage, which represents a higher credit risk. Incentivized debentures and CRI/CRA may be exempt from IR for individuals, depending on the classification. Always check the prospectus and issuer conditions before investing.
Taxation: What You Need to Know
Fixed income taxation in Brazil generally follows the regressive Income Tax table, which applies to earnings (not the principal):
Investment Term IR Rate Up to 180 days 22.5% From 181 to 360 days 20% From 361 to 720 days 17.5% Above 720 days 15% In addition to IR, investments with terms of up to 29 days are subject to the IOF (Tax on Financial Operations), which is regressive and reaches zero from the 30th day. The IR is withheld at the source by the financial institution at the time of redemption.
Important exceptions: LCI, LCA, CRI, CRA, and incentivized debentures are exempt from IR for individuals, but exemption rules can be changed by legislation. Always confirm current conditions with the Federal Revenue Service (www.gov.br/receitafederal) or the institution where you plan to invest.
Advantages and Risks of Fixed Income
Like any investment, fixed income has positive points and points that deserve attention. Here’s a balanced analysis:
Advantages
- Predictability: you know how the return will be calculated from the start, making financial planning easier.
- Variety of products: there are options for different profiles, terms, and goals.
- FGC Protection: for CDB, LCI, and LCA, there is coverage of up to R$ 250,000 per CPF per institution.
- Accessibility: it is possible to start with low amounts, especially in Treasury Direct.
- Variable liquidity: some products, like Treasury Selic, allow redemption with daily liquidity (subject to market conditions).
Risks and Disadvantages
- Credit risk: if the issuer fails to honor the commitment, the investor may incur losses. This is more relevant in smaller banks and debentures.
- Market risk (mark-to-market): if you need to sell a fixed or hybrid rate bond before maturity, the price may differ from the invested amount—up or down, depending on the interest rate scenario.
- Inflation risk: in fixed rate bonds, if inflation rises beyond expectations, the real gain may be lower than anticipated.
- Restricted liquidity: some products have penalties or restrictions for early redemption.
- Taxation: IR reduces gross returns, and this should be considered when comparing products.
How to Compare Fixed Income Products Practically
To fairly compare fixed income investments, it is essential to consider the net return—i.e., already discounted IR and other costs—and not just the announced gross rate.
Follow these steps when evaluating an option:
- Identify the type of return (fixed, floating, or hybrid) and if it makes sense for your goal.
- Check the term and liquidity: when can you redeem without penalty?
- Calculate the net return: deduct IR and compare with other options of the same term.
- Assess the issuer’s credit risk: large bank, small bank, private company? Is there FGC coverage?
- Check the minimum investment amount and if it fits your budget.
- Consult official sources for current reference rates: the Selic rate at the Central Bank (www.bcb.gov.br), the CDI at B3, and the available bonds at Treasury Direct.
A practical tip: products with IR exemption (like LCI and LCA) need to offer a lower gross rate to still be competitive. The correct comparison is always made on the net return of each alternative.
Fixed Income as Part of a Larger Strategy
Fixed income doesn’t have to be seen as “the conservative investment for those who don’t want to take risks.” It can be a strategic piece within a diversified portfolio, fulfilling specific functions: emergency reserve, inflation protection, predictable income generation, or simply balance in relation to higher-risk assets.
If your long-term goal is to build enough wealth to live off income, for example, understanding how fixed income fits into this strategy is crucial. Learn how to think about this planning in the article How Much Do I Need to Save to Live Off Income?.
The central point is that each investor’s profile—risk tolerance, time horizon, and objectives—should guide the choices. There is no universally “better” product: there is the most suitable product for each situation.
Conclusion
Fixed income is one of the most accessible and widely used investment categories in Brazil, and understanding how it works is an essential step in any investor’s journey. Knowing the difference between fixed, floating, and hybrid rates, being aware of available products, and understanding the risks and taxation involved already puts you in a much more informed position to make decisions.
The most important thing is to always start from verifiable and updated information: consult the Central Bank, Treasury Direct, B3, and the Federal Revenue Service for accurate data before applying. And remember: every investment carries risk, including fixed income. FGC protection has limits, bonds can be affected by the market before maturity, and inflation can erode gains. Investing consciously is investing more safely.
> Important Note: This article is for educational purposes only and does not constitute investment advice. Each financial situation is unique. For investment decisions, consult a professional or investment advisor duly registered with the Securities and Exchange Commission (CVM).
- Check the term and liquidity: when can you redeem without penalty?
- Market risk (mark-to-market): if you need to sell a fixed or hybrid rate bond before maturity, the price may differ from the invested amount—up or down, depending on the interest rate scenario.
- Variety of products: there are options for different profiles, terms, and goals.
- Floating Rate: the return follows a reference index, such as the CDI or Selic. The final amount is only known upon redemption, as it depends on the index’s variation over time.
