When a bond matures, the issuer pays back the full face value of the bond, makes any final interest payment that has accrued, and the lending arrangement ends. That is what it means when a bond matures: the issuer’s obligation is complete, coupon payments stop, and the bond no longer exists as an investment. The maturity date itself is fixed in the bond’s indenture from the day it was issued and does not change with market conditions.
What You Get Back and When
At maturity, the issuer pays you par value. For most corporate and municipal bonds, par is $1,000 per bond.1Municipal Securities Rulemaking Board. Municipal Bond Basics If you bought the bond on the secondary market for more or less than $1,000, the issuer still pays only par, not the price you paid. The difference between your purchase price and par affects your taxes, not your payout.
How you receive the money depends on how you hold the bond. If it sits in a brokerage account, the process is usually automatic: the clearinghouse processes the payment and cash appears in your account on the maturity date or the next business day. You generally don’t need to do anything. Treasury securities held in a TreasuryDirect account are paid out automatically on the maturity date unless you’ve set up reinvestment instructions.2TreasuryDirect. Redeeming Treasury Marketable Securities
Paper savings bond certificates are different. You have to redeem them yourself, either at a bank where you have an account or by mailing them to TreasuryDirect with a completed FS Form 1522 and a certified signature.3TreasuryDirect. Cashing Old Bonds From Other Series
The Final Interest Payment
Maturity also ends the interest stream. Any interest that has accrued since the last coupon date is added to the final payment, so you receive both the principal and whatever interest you earned in the last partial period. After that, no more coupon payments come. Even if the issuer is late returning principal, the regular interest schedule is considered complete on the scheduled maturity date.
Taxes on a Matured Bond
Getting your principal back is not a taxable event on its own. You lent money, and you’re being repaid. The final interest payment, however, is taxable as ordinary income in the year you receive it.
Things get more involved if you didn’t buy the bond at par:
- If you bought it below par on the secondary market and held it to maturity, the difference between your purchase price and par is generally taxed as ordinary income, not capital gain, unless you elected to report the market discount annually.4Internal Revenue Service. Publication 1212, Guide to Original Issue Discount (OID) Instruments
- If you paid more than par and did not amortize the premium each year, the excess becomes part of your cost basis and produces a capital loss at maturity. If you did amortize annually, there is no gain or loss to report when the bond matures.4Internal Revenue Service. Publication 1212, Guide to Original Issue Discount (OID) Instruments
U.S. savings bond interest is subject to federal income tax but exempt from state and local income tax. You can report the interest each year as it accrues or defer all of it until you cash the bond or it matures. If you defer, you’ll get a Form 1099-INT in the year the interest is finally paid out.5TreasuryDirect. Tax Information for EE and I Bonds
Zero-coupon bonds work differently and are worth flagging. They pay no interest along the way; you buy them at a deep discount and receive full face value at maturity. But the IRS still requires you to report a portion of the growth, called original issue discount, as ordinary income each year, even though you haven’t received any cash. That means by the time the bond matures, you’ve already paid tax on most of the gain.6Internal Revenue Service. Topic No. 403, Interest Received Municipal zero-coupon bonds may be exempt from federal or state taxes, but most taxable zeros follow this rule.
When a Bond Doesn’t Reach Its Scheduled Maturity
Two situations can end a bond before its stated maturity date, and it’s worth knowing they exist.
The first is a call. Some bonds include a provision that lets the issuer redeem them early, typically after an initial call protection period. Issuers usually call bonds when interest rates have dropped and they can refinance more cheaply. When that happens, you receive the call price (often par, sometimes with a small premium) plus accrued interest, and the bond ends.7Investor.gov. Callable or Redeemable Bonds Callable bonds generally offer higher yields to compensate for this possibility.
The second is default. If the issuer can’t pay principal or interest when due, you may not receive full par at maturity. For bonds issued under a qualified trust indenture, a trustee is appointed to protect bondholder interests and can pursue remedies such as accelerating the debt, filing suit, or seizing collateral.8Office of the Law Revision Counsel. 15 USC 77ooo – Duties and Responsibility of the Trustee Recovery in default depends heavily on where the bond sits in the issuer’s capital structure: senior secured bonds have historically recovered more than unsecured or subordinated debt, and in bankruptcy, bondholders are paid after secured creditors but before stockholders.
What to Do With the Money
Once the cash lands in your account, you face a practical question: where does it go next? If interest rates have fallen since you bought the bond, you may not find a replacement paying the same yield. This is reinvestment risk, and it affects every fixed-income investor.
One common way to blunt it is a bond ladder: owning bonds with staggered maturity dates so only a slice of the portfolio matures in any given year. That way you’re never reinvesting the whole balance into whatever rate happens to be available on a single day.
If You Forget About a Matured Bond
Money from a matured bond doesn’t disappear if you don’t claim it, but a savings bond stops earning interest on its final maturity date.9TreasuryDirect. EE Bonds If the funds sit unclaimed long enough, the state where you last lived may take custody through escheat, typically after a dormancy period of three to five years.
You can search for unclaimed savings bonds through TreasuryDirect’s Treasury Hunt tool or your state’s unclaimed property database. For corporate or municipal bonds held through a brokerage, the firm is required to try to contact you and, if it can’t, eventually turn the funds over to the state.