(FORTUNE Magazine) – Imagine earning 5% annual interest on a fixed-income investment--but unlike the highest-yielding CDs, this one requires only a two-year commitment. Sounds enticing, given the paltry rates money markets are paying these days. The answer lies in individual corporate bonds that retail investors can actually buy.

Because corporate paper is generally sold in prohibitively large blocks and typically only to major institutions, individual investors have been relegated to bond funds. That's changing fast--and many investors are starting to jump.

Incapital, a boutique firm in Chicago, along with ABN AMRO's LaSalle Broker Dealer Services and Merrill Lynch, now sells corporate debt to retail investors in $1,000 chunks. Only a handful of issuers are available so far: Incapital has signed Bank of America, Household Finance, DaimlerChrysler, and Boeing Capital to the program. LaSalle has another five: General Motors Acceptance Corp., Caterpillar Finance, UPS, Freddie Mac, and the Tennessee Valley Authority. And Merrill Lynch can get you Fannie Mae, Diageo, and Merrill itself. Here's how it works: A new batch of bonds is issued each week. (You buy them through your brokerage account as you would a stock.) The bonds range in both maturity and yield--from 5% for Incapital's two-year DaimlerChrysler note to 7.3% for its 20-year Household Finance offering. They also vary in credit quality: All are investment grade, and some--UPS, Fannie Mae, Freddie Mac, and the Tennessee Valley Authority--boast triple-A ratings to boot.

Purchasing bonds directly has a few advantages over funds. For one, the income you receive doesn't fluctuate with the market. You get the yield you signed up for, installment after installment. Second, the maturity--and the associated risk--decline over the life of the bond. Not so with a fund.

However, because you're buying just one issue at a time--maybe a few at most--your bets are highly concentrated. That can be risky. "High-rated companies can become low rated immediately," cautions Ross Levin, a Minneapolis financial planner who advises investors to stick with bonds that have a shorter maturity and therefore less risk. The bonds have neither the government guarantee of a Treasury or a CD nor the liquidity of a money market. (The banks will buy the bonds back, but only at the current market price, which may be below par.) Still, if you're willing to bet that, say, DaimlerChrysler won't default on its obligations--at least in the next two years--the company will pay you a pretty premium for your faith.

--Shelley Neumeier