Zero-coupon bonds work like U.S. Savings Bonds: you buy them at a deep discount and receive the face value at maturity. Most zero-coupon Treasury bonds (often called "zeros") are available with a minimum $1,000 face value. They are backed by the full faith and credit of the United States government. When used for college savings, investors will usually buy them with a maturity date that matches the date that the child will enter college. The issuer makes no interest payments during the life of the security. When it matures, you receive the full face amount, which equals your initial investment plus the interest compounded over the life of the bond. There are many different structures available for U.S. Treasury zero-coupon bonds, including STRIPS, FICOs, and REFCOS. |