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Bonds & RatesGlossary

Coupon

A bond's coupon is the interest it pays, set as a rate on face value when the bond is issued. Plain-English definition, a worked example and related terms.

Also called: coupon rate, coupon payment

By The Token Thesis Desk2 min read6 cited sources

A pile of clipped paper coupons with a pair of scissors
“Coupon Pile Stock Photo (10865703765)” by Carol Pyles from Winter Haven, FL, US — CC BY 2.0 (edited: cropped, recolored)

Quick answer

A bond's coupon is the interest it pays. The coupon rate is set when the bond is issued and applied to the bond's face value; the coupon payment is the resulting dollar amount, usually paid twice a year.

What does coupon mean for a bond?#

Investor.gov defines a coupon as a feature of a bond that denotes the amount of interest due and the date the payment will be made[1]. FINRA says a coupon, also called the coupon rate, is the interest payment made on a bond, usually paid twice a year[2].

Two related phrases are worth separating. The coupon rate is the annual interest rate set when the bond is issued, which does not change during the bond's life[3]. The coupon payment is the dollar amount, calculated by multiplying the bond's interest rate by its face value[4].

How is a coupon payment calculated?#

Worked example

A $1,000 bond with a 5% coupon

5% of $1,000 is $50 a year. Paid twice a year, that is $25 every six months. The same 5% coupon on $10,000 of face value pays $500 a year, or $250 per half-year.

Face valueCoupon per year (5%)Each half-yearly payment
$1,000 face value$50.00$25.00
$5,000 face value$250.00$125.00
$10,000 face value$500.00$250.00

Figures computed in code from the stated inputs; rounded to the nearest cent or tenth.

Is the coupon the same as the yield?#

No. The coupon is fixed in dollars, but the bond's market price moves, so the return you earn for the price you pay — the yield — moves too. If the 5% bond above trades at $950, its $50 coupon is a 5.26% current yield; at $1,050 it is 4.76%. FINRA describes price and yield as inversely related[3]. Read bond yield explained for the full picture, or try the bond yield calculator.

Some bonds have no coupon at all. Zero-coupon bonds pay no interest during their life; investors buy them at a deep discount to face value and receive the face value at maturity[5].

Where will you see this term?#

Bonds are usually described by their coupon rate, face value and maturity together — the SEC's bulletin on interest rate risk describes its sample bond exactly that way[6]. When rates in the market change, the coupon on an existing fixed-rate bond stays the same and the price adjusts instead — see why bond prices fall when rates rise. For the basics, start with what a bond is.

Sources

Numbers in brackets in the text point here. Grade A = primary source (regulator, statistics agency, law or official document).

  1. 1
    Coupon (glossary)U.S. SEC — Investor.gov (n.d.) · Grade A
  2. 2
    BondsFINRA (n.d.) · Grade A
  3. 3
  4. 4
    Coupon Payment (glossary)U.S. SEC — Investor.gov (n.d.) · Grade A
  5. 5
    Zero Coupon Bond (glossary)U.S. SEC — Investor.gov (n.d.) · Grade A
  6. 6

How we checked this note

Every number, date and rule above links to its source. This note cites 6 sources, 6 of them primary (Grade A). Worked examples were calculated in code, and a second editor compared each figure with its source before publishing. Spotted an error? Tell us — corrections are listed on the note. Read our editorial policy.