What it is:
How it works/Example:
Debt instruments such as bonds, CDs, and commercial paper are issued with a lifespan that terminates on a specific date, known as the maturity date. The maturity date represents the point at which the issuing party must return the principal or par value associated with the security, in addition to all unpaid interest.
Say an investor bought a bond issued at $100 with a maturity date of April 1, 2025. In most circumstances, until that date the bond will trade and make regular interest payments to the investor.
If the bond is held until April 1, 2025, then on that date the borrower will pay the investor any remaining interest payments plus return the bond's principal amount.
Why it matters:
The maturity date defines the lifespan of an interest-bearing security and designates the time at which the issuer (borrower) must repay the principal and interest to the holder (lender). Once the maturity date passes and interest and principal have been repaid, the contractual obligations of the issuer are terminated.