Deferred Interest Bond

DEFINITION of 'Deferred Interest Bond'

A debt instrument that pays interest only upon maturity. Unlike most bonds, a deferred interest bond does not make periodic, or "coupon," payments over its lifetime. Instead, the interest accrues and is paid out when the bond expires (matures). For example, a one-year deferred interest bond that has a par value of $500 and an annual yield of 6% would pay the investor $530 when the year was up (the initial $500 investment plus $30 in interest).

BREAKING DOWN 'Deferred Interest Bond'

A deferred interest bond can be a good choice for those looking to save money while accruing more interest than they might receive in a bank savings account or a money market fund, for example. Examples of such bonds include zero-coupon bonds, which pay no interest at all but offer appreciation via the par value. As a result, zero-coupon bonds are sold at a discount.