Invest for Your Child’s College with Zero Coupon Bonds

Registered under the Securities Act of 1934, International Assets Advisory is a full service brokerage and money management firm based in Orlando, Florida. Focused on tailoring investment solutions that fit their clients’ needs, International Assets Advisory offers a broad range of fixed-income investment options including zero coupon bonds.

Zero coupon bonds are fixed income securities which, unlike traditional bonds, do not pay interest. Rather, the bonds are traded at a very significant discount and when they mature, the investor is paid the full face value of the bond, and thereby earns a profit (interest). 

Zero coupon bonds can be issued by the U.S. Treasury, state and municipal governments, and corporations. The bonds have longer maturity periods than most other types of bonds, usually upwards of 10 years. These bonds are often attractive to investors with a long term goal such as paying for a child’s college education. 

The price of zero coupon bonds fluctuates heavily because the bonds do not pay interest until maturity. Furthermore, investors may still have to pay tax on the imputed interest of the bond. However, they also have the option of buying tax-exempt municipal zero coupon bonds (if issued in the state where they reside), or tax-exempt corporate zero coupon bonds, although they are much less common.

Despite the advantages associated with zero coupon bonds, potential risks include taxation, no interest paid until maturity, call risk, liquidity risk and credit risk.