Believe it or not, you just may get a bargain by paying a premium for a bond! A premium bond is one that sells at a price higher than its face value. Because people are generally resistant to paying a premium for anything, premium bonds frequently will be offered at a yield which is a few basis points higher than a comparable par or discount bond in order to “entice” investors to buy them.
We often say that premium bonds are “more defensive” because they can hold their value better than par or discounts when rates are rising. This is because of both math and the fact that its coupon is already ”up there” in the direction rates are going.
Premium bonds also may enable one to earn more “interest-on-interest,” because higher coupon payments provide more cash for reinvestment (and thus more interest payments received on the reinvestment).