Legal Definitions - zero-coupon security

A zero-coupon security is a type of investment that does not pay interest or dividends. Instead, it is sold at a discount to its face value and then redeemed for the full face value at maturity.

For example, let's say you buy a zero-coupon bond for $800 that will mature in 10 years for $1,000. You don't receive any interest payments during those 10 years, but when the bond matures, you will receive the full $1,000.

Zero-coupon securities are often used by investors who want to lock in a specific return at a future date. They are also popular for retirement planning because they can be purchased at a discount and then redeemed for their full value when the investor needs the money.