Zero coupon CD
Zero coupon CD Meaning:
In deposit terminology, the term Zero-coupon CD refers to a Certificate of Deposit that pays no interest rate to the holder during the term of the instrument. Zero Coupon CDs offer a lower return than comparable CDs without the Bump-up option.
In deposit terminology, the term Zero-coupon CD refers to a Certificate of Deposit that pays no interest rate to the holder during the term of the instrument. Zero Coupon CDs offer a lower return than comparable CDs without the Bump-up option.
For example, buying a Zero-coupon CD will often entail paying a price that is deeply discounted relative to its face value at maturity. This is the case because the lack of an interest rate or coupon on the Zero-coupon CD that is compensated for by an appropriate reduction in its purchase value. In the United States, tax may be due on the income accrued each year on a Zero-coupon CD despite the lack of an actual payment with CDs that have a maturity longer than one year. Depending on the investors situation, this can require having extra funds set aside to cover such taxes.
List of US Certificate of Deposit Rates (CDs) by Banks