Coupon Rate
A coupon rate is the annual interest a bond pays, expressed as a percentage of its face value (its similar to an interest rate).
What it means
A coupon rate is the annual interest a bond pays, expressed as a percentage of its face value (its similar to an interest rate). It determines the regular income you'll receive while you own the bond, although it doesn't necessarily reflect the bond's overall return if you buy or sell it at a different price.
A £1,000 bond with a 4% coupon rate pays £40 of interest each year until it matures.
Why it matters
If you're investing in bonds for income, the coupon rate tells you how much regular interest the bond is designed to pay.
A bond's coupon rate stays the same after it's issued, even if its market price changes.
Is the coupon rate the same as the return I'll earn?
No. If you buy a bond above or below its face value, your actual return may be different.