Zero coupon CD
In deposit terminology, the term Zero-coupon CD refers to a Certificate of Deposit that pays no interest rate to the holder during the term of the instrument. Zero Coupon CDs offer a lower return than comparable CDs without the Bump-up option.
For example, buying a Zero-coupon CD will often entail paying a price that is deeply discounted relative to its face value at maturity. This is the case because the lack of an interest rate or coupon on the Zero-coupon CD that is compensated for by an appropriate reduction in its purchase value. In the United States, tax may be due on the income accrued each year on a Zero-coupon CD despite the lack of an actual payment with CDs that have a maturity longer than one year. Depending on the investors situation, this can require having extra funds set aside to cover such taxes.