We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What is a Deferred Interest Bond?

Malcolm Tatum
Updated May 16, 2024
Our promise to you
SmartCapitalMind is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At SmartCapitalMind, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

Deferred interest bonds are bond issues that do not provide for periodic interest payments. Instead, the interest is paid to the bondholder at a specified point during the later maturity of the bond. This postponing of the interest payment may be shortly before the bond reaches maturity or be delayed until full maturity is achieved. One example of a deferred interest bond is known as the zero-coupon bond.

One of the main advantages of investing in a deferred interest bond is that the bonds are often available at significant discounts off the face value of the bond. This means that it is possible to enjoy a higher rate of return once the bond does reach maturity. In some cases, the return is not only realized because of the amount of interest accrued during the life of the bond, but also due to receiving the face value of the bond as the return on the principle.

Investors who wish to defer the reception of interest payments on bond issues also find the deferred interest bond approach to be very helpful. Because the interest is not scheduled to be paid until a certain date, it is easier to arrange finances in a manner that helps to minimize the taxes that become due once the interest payment is actually received. This is especially true if the principle and the interest are paid at the same time.

A deferred interest bond may also be a good investment, as the bond issue may carry a rate of interest that is very competitive with other types of bonds. The potential for earning a slightly higher rate of interest may prove to be attractive enough for the investor to forgo periodic interest payments and go with a lump sum interest payment late in the maturity process.

It is possible to locate deferred interest bond issues in just about any situation where bonds are issued. Municipalities may structure bond issues as a deferred interest bond. Companies who craft bond issues can also make use of the model, as the process of postponing the interest payments until a specific point in time makes it easier to set aside resources incrementally to meet the obligation.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Malcolm Tatum
By Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including SmartCapitalMind, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.
Discussion Comments
Malcolm Tatum
Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
Learn more
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.