Zero Coupon CDs

Zero-coupon CDs are like zero-coupon bonds. What happens is you buy a CD at a deep discount to the par value of the CD. You’ll usually get a higher interest rate with these CDs, but you won’t get any interest each month, it all gets paid out in the end.

For example, if you buy a 12-year, $100,000 CD with a 6 percent interest rate for $50,000, you wouldn’t receive any interest payments during the 10-year term. Instead, that money is being reinvested. You’d receive the $100,000 face value when the CD matures.