Deferred Interest Bond

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Paul Tracy

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Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 2 million monthly readers. While there, Paul authored and edited thousands of financial research briefs, was published on Nasdaq. com, Yahoo Finance, and dozens of other prominent media outlets, and appeared as a guest expert at prominent radio shows and i...

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Updated September 16, 2020

What is a Deferred Interest Bond?

A deferred interest bond is a bond which pays interest in full upon maturity.

How Does a Deferred Interest Bond Work?

A deferred interest bond, unlike most bonds, does not pay interim (coupon) payments between issuance and maturity. Rather, a deferred interest bond accrues interest over the entire term and pays a lump-sum interest payment at maturity in addition to principal. For instance, a one-year deferred interest bond with a par value of $1,000 and an annual yield of 10% would pay a lump sum of $100 in interest at the end of one year in addition to the $1,000 principal.

Why Does a Deferred Interest Bond Matter?

As an income instrument, deferred interest bonds are a good choice for long-term investors or those seeking an alternative to a savings account. The absence of coupon payments makes deferred interest bonds a poor choice for those seeking periodic income.

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Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 2 million monthly readers.

If you have a question about Deferred Interest Bond, then please ask Paul.

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