What is a Deferred Interest Bond?
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
