Callable Bond

A callable bond can be called in early. That means the issuer has the right to redeem the bond before its maturity date. You might buy a bond that promises to pay 9% for 30 years, but the fine print makes the bond callable in three years at 102 cents on the dollar. This means the company could pay you off sooner and you won't receive the full interest you expected to get over the full life of the bond.

Having the ability to call a bond protects the issuer in case interest rates drop a lot. If that happens, they can call in their bonds and issue new ones at lower rates.