What is an Accumulation Bond?
An accumulation bond is a type of security that is sold for less than the face value of the bond, but will eventually return to the original face value over a period of time that is specified at the time of purchase. Here are a couple of examples of how accumulation bonds work, and why they may be a good idea. Sometimes referred to as a discounted bond, the accumulation bond works in a manner similar to purchasing a savings bond and allowing it to mature before eventually cashing it in. The difference is that a savings bond is purchased for the amount of the face value, with the understanding the value of the bond will increase as it matures. Discounted bonds work in just the opposite way. As an example, the accumulation bond may be purchased for a price that amounts to 80% of the face value, with the understanding that the bond will accrue interest that will allow it to yield the entire face value at the point of maturity. In a sense, choosing to invest in bonds that are discounted on
