Published August 25, 2026
Surety bond, fidelity bond, and performance bond sound similar and get mixed up often. Here is a plain-language breakdown of what each one is and who needs it.
These three terms get used interchangeably, but they are not the same thing. A performance bond is actually a type of surety bond, while a fidelity bond is a different kind of product entirely. Here is how they compare.
A surety bond is a three party agreement. You, the principal, promise to meet an obligation, such as following the rules of a license or completing a contract. The obligee is the party requiring the bond, often a government agency or a party you are contracting with. The surety company backs your promise financially, and if you fail to meet your obligation and a valid claim is filed, the surety pays the obligee up to the bond amount and then seeks repayment from you.
Surety bonds cover a wide range of situations, including business licenses and permits, court proceedings, and construction contracts. Performance bonds fall under this larger category.
A performance bond is a specific kind of surety bond used in construction and other contract work. It guarantees that a contractor will complete a project according to the terms of the contract. If the contractor fails to finish the work or does not meet the contract terms, the party who hired them, called the project owner, can make a claim against the bond to cover the cost of completing or correcting the work.
Performance bonds are common on public construction projects and are often required alongside a payment bond, which guarantees that the contractor's subcontractors and suppliers get paid.
A fidelity bond works differently from a surety bond, even though it is often sold by the same companies. A fidelity bond protects a business against losses caused by its own employees, such as theft or embezzlement. Unlike a surety bond, a fidelity bond is really a two party arrangement between the business and the bonding company, and it pays the business directly if a covered loss happens.
A fidelity bond does not guarantee that an employee will perform a job correctly, and it does not protect the public the way a license bond does. It exists to protect the business itself, or sometimes the business's clients, from dishonest acts by its own staff.
The easiest way to remember the difference is who the bond protects. A surety bond, including a performance bond, protects an outside party, the obligee, from your failure to meet an obligation. A fidelity bond protects the business itself, or its clients, from dishonest acts committed by its employees.
If a state, city, or licensing board is requiring you to carry a bond to operate, that is a surety bond. If you are bidding on a construction contract that requires a guarantee you will finish the job, that is a performance bond, which is also a surety bond. If you want to protect your business from employee theft, or a client is asking you to prove you carry that protection, that is a fidelity bond.
You can browse license and permit bonds, learn more about contract bonds like performance bonds, or see options for fidelity bonds to protect your business.