Definition of Bearer Bonds

Bearer Bonds, also called Coupon Bonds, are physically owned as opposed to electronically owned. Because of this, Bearer Bonds can be a risky investment. Due to the risk to the owner and illegal activity stemming from the nature of the bonds, they are rarely seen today.

Bearer Bonds

A Bearer Bond is a bond that is owned by the person who physically holds the bond certificate; it is not officially registered to anyone. Almost all bonds today are registered, and electronic information is then sent on to the IRS.

Coupons

Bearer Bonds contain physical coupons that can be redeemed at an authorized agent twice a year to obtain the interest payments. Since no information is recorded on the bondholder, anyone that holds the coupon can collect the interest.

Uses

Bearer Bonds are used primarily because they are easily negotiated and are able to have very high face values.

Risks

Since Bearer Bonds are not registered, if they are lost or stolen, the owner has no recourse. Bearer Bonds are also easily used for illegal activities, such as money laundering and tax evasion.

Availability

Bearer Bonds are rarely seen within the United States today. In 1982, the Tax Equity & Fiscal Responsibility Act barred any institutions from issuing any new Bearer Bonds, due primarily to the surge in illegal uses beginning after World War I.