How to Handle Zero Coupon Bond Maturity

A zero coupon bond is one that does not pay you regular interest while you own it, as most other types of bonds do. Rather, when you own a zero coupon bond, you receive one large payment at the end of the bond's life, known as its maturity date. As a result, when a zero coupon bond matures, the issuing company owes you a lump sum of money. How you receive that money depends on who holds the bond at the time of maturity.

Instructions

1. Know when your bond will mature. At the time you purchase your zero coupon bond, you receive a trade confirmation showing you all the details of the bond you bought. One of the most important bits of information is the bond's maturity date, or the date when the bond will pay off. Because this date is fixed, you generally know years in advance when that payment is arriving. Knowing when your bond will mature should give you ample time to prepare a plan for how to handle that bond's maturity.

2. Receive your payment from your financial services firm. If you hold the zero coupon bond at a financial services firm, such as a bank or a stock brokerage company, the firm should credit your account with the maturity value of the bond on the day it matures. This is the easiest way to receive the money from your maturing bond proceeds.

3. Locate the bond's transfer agent. If you hold your zero coupon bond yourself, rather than with a financial services firm, you have to manually submit your bond to receive payment. Each bond has a transfer agent whose responsibility is to process securities transactions, such as bond maturities. You may be able to find transfer agent information on your original trade confirmation or on the back of the bond itself. You also can call the investor relations department of the issuing company to locate the transfer agent, or visit the database of the Securities Transfer Association.

4. Follow the instructions of the transfer agent. To redeem a zero coupon bond with a transfer agent, you usually have to sign either the back of the bond or some other instrument to authenticate your identity. Different agents may have other specific requirements. Mail the bond to the transfer agent following the agent's instructions. Generally, you should send the bond with some sort of tracking service and/or insurance, such as via registered mail.

5. Receive your bond proceeds from the transfer agent. Upon verification of the information you send to the transfer agent, you should receive a check in the mail for the value of your bond.

References

• FINRA: Bond Basics -- Bond Coupons -- Zero Coupon Bonds
• U.S. Securities and Exchange Commission: Zero Coupon Bonds
• U.S. Securities and Exchange Commission: Transfer Agents

Resources

• The Securities Transfer Association, Inc.: Home Page