Investment Glossary

A zero coupon bond, also called a discount bond, is a bond or debt security that redeems no interest and is initially sold at a discount. It is bought at a price lower than its face value, does not make periodic interest payments or other so-called "coupons" (which is where it gets its name).

When the bond reaches maturity, its investor receives its par (or face) value. Examples of zero-coupon bonds include U.S. Treasury bills, U.S. savings bonds, long-term zero-coupon bonds, and any type of coupon bond that has been stripped of its coupons.