Bond maturity is the date when the issuer pays back your principal

A bond matures on a specific date set when the bond is issued. On that date, the organization that borrowed your money—a company, city, or the federal government—pays you back the full amount you originally invested. Until maturity arrives, you receive interest payments at regular intervals, usually twice a year. The length of time from when you buy the bond until maturity can range from a few months to 30 years or more, depending on which bond you choose.

The maturity date is printed on the bond certificate or listed in the bond's prospectus, the document that describes what the bond is and how it works. You know exactly when your money comes back before you buy it. This is different from stocks, where there is no set date and no may provide return of your principal.

Key Takeaways

  • The maturity date is fixed when the bond is issued, and the issuer must repay your full principal on that date.
  • Short-term bonds mature in one to five years, intermediate bonds in five to ten years, and long-term bonds in ten to 30 years or longer.
  • You can sell a bond before maturity on the secondary market, but its price may be higher or lower than what you paid depending on interest rate changes.
  • If you hold a bond until maturity and the issuer does not default, you will receive your principal back in full regardless of price fluctuations.

Short-term, intermediate, and long-term bonds have different time horizons

Bonds are often grouped by how long they take to mature. Short-term bonds mature in one to five years. These are less sensitive to interest rate changes, so their prices stay relatively stable. They also pay lower interest rates because you are lending money for a shorter period and taking on less risk.

Intermediate bonds mature in five to ten years. They offer a middle ground: higher interest rates than short-term bonds, but less price volatility than long-term bonds. Many investors choose intermediate bonds as a balance between income and stability.

Long-term bonds mature in ten to 30 years or sometimes longer. They pay the highest interest rates because you are lending money for a long time and the issuer's financial situation could change significantly. However, their prices swing more when interest rates move, so if you need to sell before maturity, you might get less than you paid.

Treasury bonds, corporate bonds, and municipal bonds have different standard maturities

The U.S. Treasury issues bonds with specific maturity dates. Treasury bills mature in less than one year. Treasury notes mature in two, three, five, seven, or ten years. Treasury bonds mature in 20 or 30 years. When you buy one, you know exactly which maturity you are getting.

Corporate bonds—issued by companies—can mature at almost any date the company chooses. A company might issue a bond maturing in five years, ten years, or 25 years. The prospectus tells you the exact maturity date.

Municipal bonds, issued by cities and states to fund projects like schools or roads, also have varied maturity dates. Some mature in a few years, others in 20 or 30 years. The bond document specifies the maturity date when it is issued.

You can sell a bond before maturity, but the price depends on interest rates

You do not have to hold a bond until maturity. You can sell it on the secondary market—the market where existing bonds trade between investors—at any time. However, the price you receive depends on what has happened to interest rates since you bought it.

If interest rates have fallen, your bond becomes more valuable because it pays a higher rate than new bonds being issued. You can sell it for more than you paid. If interest rates have risen, your bond pays less than new bonds, so buyers will pay you less than your original investment. The longer the bond's remaining time to maturity, the bigger the price swing tends to be.

This is why holding until maturity matters: if you wait for the maturity date, the issuer pays you back the full principal amount you originally invested, regardless of what happened to interest rates or the bond's market price in the meantime. You lock in that return.

Callable bonds can mature earlier than the stated date

Some bonds are callable, meaning the issuer has the right to pay you back early—before the maturity date printed on the bond. Companies and municipalities often include this feature so they can refinance if interest rates drop.

If you own a callable bond and interest rates fall, the issuer will likely call it, paying you back your principal early. You then have to reinvest that money in a lower-interest-rate environment. The prospectus will tell you the call date or dates—the earliest date the issuer can call the bond—and the call price, which is usually slightly above par (your original investment).

When you evaluate a callable bond, look at the call date as well as the maturity date. The bond might say it matures in ten years, but it could be called back in five. This affects how long you actually hold the bond and how much interest you collect.

What happens if the issuer defaults before maturity

If the organization that issued the bond runs into financial trouble and cannot pay, it may default—fail to make interest payments or return your principal on the maturity date. This is rare with U.S. Treasury bonds because the federal government backs them, but it can happen with corporate and municipal bonds.

If a bond defaults, you may recover some of your money through bankruptcy proceedings, but you will not receive the full amount you invested. This is why bond ratings exist: agencies like Moody's and Standard & Poor's rate bonds based on the issuer's financial strength. Higher-rated bonds are less likely to default but pay lower interest rates. Lower-rated bonds pay higher interest rates but carry more default risk.

Holding until maturity does not protect you from default risk, but it does mean you are not forced to sell at a loss due to market conditions. You wait for the issuer to pay or default.

Frequently Asked Questions

Can I find out the maturity date before I buy a bond?

Yes. The maturity date is listed in the bond's prospectus and on financial websites that quote bonds. You know the exact date before you purchase. If you are buying through a broker, they will show you the maturity date as part of the bond's details.

What happens to my interest payments after a bond matures?

Interest payments stop on the maturity date. You receive your final interest payment and your principal back. After that, you no longer own the bond and receive nothing from it unless you reinvest the money in another bond or investment.

Do all bonds have the same maturity length?

No. Maturity lengths vary widely. Treasury bills mature in less than a year, while some corporate and municipal bonds mature in 30 years or longer. You choose the maturity that fits your timeline and financial goals.

If I buy a bond close to its maturity date, how long will I hold it?

You will hold it until the maturity date printed on the bond, which could be weeks or months away. Buying a bond near maturity means you collect less interest but have your principal returned sooner. The price you pay may be close to par because there is little time for interest rate changes to affect it.

What is the difference between maturity date and call date?

The maturity date is when the issuer must pay you back. The call date is when the issuer has the option to pay you back early. If a bond is callable, the call date comes before the maturity date. The issuer decides whether to call it; you do not have a choice.