When a bond matures, the issuer pays back the bond’s face value, sends any remaining interest owed, and the loan ends. That is what it means when a bond matures: the maturity date fixed in the bond’s original contract has arrived, the borrower returns your principal, and no further interest payments follow. Face value for most corporate and municipal bonds is $1,000 per bond, regardless of what you originally paid on the secondary market.1Municipal Securities Rulemaking Board. Municipal Bond Basics
The maturity date is set when the bond is first issued and written into the indenture, the formal contract between issuer and bondholders. Nothing that happens in the market between issuance and that date changes it. Once the final payment clears, the bond no longer exists as an investment and the issuer’s obligation to you is complete.
How You Receive the Money
If your bonds sit in a brokerage account, the payment is usually automatic. The clearinghouse processes the maturity payment and the cash appears in your account on the maturity date or the next business day. You generally do not have to do anything.
For Treasury securities held in a TreasuryDirect account, the government pays you automatically on the maturity date unless you have set up reinvestment instructions.2TreasuryDirect. Redeeming Treasury Marketable Securities
Paper savings bonds are different. You have to redeem them yourself. You can cash them at a bank where you have an account, or mail 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 ends all scheduled interest. Any interest that has built up since the last coupon date is added to the final payment alongside your principal, so you receive the full compensation you earned during the holding period. After that, your right to income from the bond stops. If the issuer is late returning principal, penalty provisions in the indenture may kick in, but the regular interest schedule is treated as complete on the maturity date.
What You Owe in Taxes
Receiving your original principal back is not itself a taxable event. You are getting back money you lent. The final interest payment, though, is taxable as ordinary income in the year you receive it.
If you bought the bond for something other than par, the picture shifts:
- Bought at a market discount: the difference between your purchase price and par is generally taxed as ordinary income at maturity, not as a capital gain, unless you elected to report the discount each year as it accrued.4Internal Revenue Service. Publication 1212, Guide to Original Issue Discount (OID) Instruments
- Bought at a premium: if you did not amortize the premium annually, the excess becomes part of your cost basis and produces a capital loss at maturity. If you did amortize each year, 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 it until you cash the bond or it matures. If you defer, you will receive a Form 1099-INT in the year the interest is finally paid.5TreasuryDirect. Tax Information for EE and I Bonds
Zero-coupon bonds work differently and deserve a separate note. They pay no interest along the way; instead, you buy them at a steep discount and receive full face value at maturity. You might pay $700 for a bond that returns $1,000. The IRS still requires you to report a portion of that built-in growth each year as ordinary income, an amount called original issue discount.6Internal Revenue Service. Topic No. 403, Interest Received You owe tax on money you have not actually received, sometimes called phantom income. Municipal zero-coupon bonds may be exempt from federal or state taxes, but most taxable zeros follow this rule.
When a Bond Matures Early
Some bonds include a call provision that lets the issuer pay off the debt before the scheduled maturity date. Issuers typically call bonds when interest rates have dropped, so they can refinance the debt at a lower rate.7Investor.gov. Callable or Redeemable Bonds
When a bond is called, you receive the call price (usually par) plus any accrued interest. Some bonds, particularly high-yield corporates, include a call premium above par to compensate you for the early redemption. Most callable bonds also include a call protection period after issuance during which the issuer cannot call the bond; after that window closes, the issuer may call according to the schedule in the indenture.7Investor.gov. Callable or Redeemable Bonds
The catch is reinvestment risk. You get your money back sooner than expected and may have to reinvest it at lower rates than the bond was paying. Callable bonds therefore usually offer a higher yield than comparable non-callable bonds.
When the Issuer Cannot Pay
An issuer that fails to pay principal or interest when due is in default. For bonds issued under a qualified trust indenture, the Trust Indenture Act of 1939 requires a trustee to protect bondholder interests, and after default the trustee may pursue remedies such as accelerating the debt, filing lawsuits, or seizing collateral, depending on what the indenture allows.8Office of the Law Revision Counsel. 15 USC 77ooo – Duties and Responsibility of the Trustee
In practice, bondholders in a default rarely recover the full amount owed. How much you get back depends largely on where your bond sits in the issuer’s debt structure. Senior secured bonds have historically seen higher recovery rates than unsecured or subordinated bonds. If the issuer enters bankruptcy, bondholders are generally paid after secured creditors but before stockholders.
What to Do With the Money Next
Once your principal lands back in your account, you face the question of where to put it. If interest rates have fallen since you first bought the bond, comparable new bonds may pay less. This is reinvestment risk, and it affects every fixed-income investor.
One common way to soften it is a bond ladder: owning bonds with staggered maturity dates so only a portion of your portfolio comes due at any one time. Instead of reinvesting a lump sum in whatever rate environment exists on a single day, you spread maturities across different years and different rate environments.
If You Forget About a Matured Bond
Money from a matured bond does not disappear if you fail to claim it. For U.S. savings bonds, TreasuryDirect continues to hold the funds after maturity, but the bond stops earning interest on its final maturity date.9TreasuryDirect. EE Bonds If the bond remains unclaimed long enough, the state where you last lived may eventually claim the funds through escheat laws. Most states have dormancy periods of three to five years before transferring unclaimed bond proceeds to their unclaimed property programs.
You can look for lost savings bonds through the TreasuryDirect Treasury Hunt tool or check your state’s unclaimed property database. For corporate or municipal bonds held in a brokerage account, the brokerage is required to try to contact you and, failing that, eventually turn the funds over to the state.