A type of bond that does not pay any interest during its life. A zero coupon bond is issued at a deep discount to its face value, or par value, which is the amount that will be paid on the bond at maturity. An investor receives a lump sum interest payment at maturity equal to the difference between the face value and the initial discounted purchase price. The difference between the face value and the initial discounted purchase price is known as the original issue discount.

For an example of securities that are typically issued as zero-coupon bonds, see Practice Note, US Commercial Paper Programs: Overview. For an overview of debt securities, see Practice Note, Debt Securities: Overview.