Investing term
What is Coupon?
The fixed interest payment a bond issuer promises, usually expressed as an annual percentage of face value.
The coupon is the fixed interest a bond pays its holder, usually quoted as an annual percentage of the bond's face value and paid in instalments — often twice a year. A $1,000 bond with a 5% coupon pays $50 a year, typically as $25 every six months. The name is a relic of old paper bonds with detachable coupons you clipped to claim each payment.
The coupon is set when the bond is issued and never changes. That fixed nature is why a bond's yield can drift away from its coupon: if the bond's market price rises or falls after issue, the same fixed payment becomes a smaller or larger return relative to what a new buyer pays. The coupon is a fixed dollar promise; the yield is what that promise is worth at today's price.
The coupon is the bond's fixed interest — the same $50 a year whatever its price later does. Because it never changes, the bond's price must move instead when rates shift.
For example
A $1,000 bond with a 5% coupon pays $50 a year — often as $25 every six months — regardless of what the bond later trades for.
Learn it by doing
That's Coupon in theory — it clicks when you use it. Practise it hands-on in a free, interactive lesson (Stage 4, Stocks, Bonds, Cash & Alternatives).
Try the free lesson →Why it matters to you
The coupon matters because it's the fixed, predictable income at the heart of a bond's appeal — the reason bonds are prized for steady cash flow. But its fixedness is also the key to understanding bond pricing: because the payment can't change, the bond's price must move instead when interest rates shift, which is what drives yield and interest-rate risk. Grasping that the coupon is locked makes the rest of bond behaviour click into place.
⚠ Confusing the coupon with the yield
The coupon is the fixed rate printed on the bond; the yield is your actual return given the price you pay. If you buy a 5% coupon bond below face value, your yield is higher than 5%; above face value, lower. Judging a bond by its coupon alone — ignoring the price you pay — misstates the return you'll actually earn.