Coupon
Coupon in French
Quick definition
The coupon is the fixed annual interest a bond pays, expressed as a percentage of its face value. A $1,000 bond with a 4% coupon pays $40 a year, delivered in Canada as two $20 payments six months apart.
What the coupon pays
The coupon rate is set when a bond is issued and written into its terms. It is always a percentage of face value, never of the price you paid. A $1,000 face value bond with a 4% coupon pays $40 a year whether you bought the bond for $950 or $1,050, and in Canada that $40 arrives as two $20 payments, six months apart, since Canadian bonds pay semi-annually.
Why it is called a coupon
Bonds were once bearer certificates with a sheet of dated paper coupons attached: twice a year, you clipped one and presented it at a bank for payment. The paper is long gone, but the name stuck, and "clipping coupons" survives as shorthand for living off bond income.
Frozen at issue, while everything else moves
The coupon never changes after issue. What changes is the bond's price, which adjusts daily so the bond's overall return keeps pace with current market rates. That is why one bond wears three different "rates":
- Coupon rate: the fixed cash per $100 of face value, set at issue, never moves.
- Current yield: the annual coupon divided by today's price, so it drifts as the price does.
- [Yield to maturity](/dictionary/yield-to-maturity): the all-in annual return implied by today's price, counting coupons and the gain or loss at maturity.
Zero coupons and payment dates
Not every bond pays a coupon. A strip bond pays nothing along the way and delivers its entire return as the gap between a deep-discount purchase price and face value at maturity.
Between payment dates, a coupon-paying bond earns its interest one day at a time. Buy midway through a period and you compensate the seller for their share of the coming coupon, a settlement mechanic covered in the accrued interest article.
In Canada
Semi-annual payment is the standard across the Canadian market: Government of Canada, provincial and most corporate bonds all split the annual coupon into two equal halves. A quoted coupon of 4% therefore means 2% of face value every six months, and yields are quoted on the same semi-annual rhythm. The three-way comparison of coupon rate, current yield and yield to maturity is laid out in a table in the yield to maturity article.
Worked example
You hold $5,000 face value of a bond with a 3.25% coupon. The annual interest is 3.25% of $5,000, or $162.50, paid as two instalments of $81.25 six months apart.
Years later, market rates have risen to 5%. Your bond still pays exactly $162.50 a year; its price has simply fallen so that a new buyer earns a competitive return. The coupon is the one number in bond math that never moves.
Related terms
Reviewed by Alexandre Bernier, CFP®, CIM®, PFP®·Updated July 2026