Bonds & rates
Coupon
The fixed interest a bond pays each year, expressed as a percentage of its face value.
How it works
A 5% coupon on a $1,000 bond pays $50 a year, usually in two instalments, regardless of what the bond currently trades for.
Because the payment is fixed and the price moves, the coupon rate and the yield are different numbers as soon as the bond trades away from par.
Related terms
- Face valueThe amount a bond repays at maturity, and the amount its coupon is calculated on.
- Current yieldA bond’s annual coupon divided by its current market price.
- Yield to maturityThe total annual return from holding a bond to maturity, counting coupons and any price gain or loss.
- Zero-coupon bondA bond that pays no interest and is instead issued well below face value.
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Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.