A bearer bond is different than a normal financial bond in that no records are kept of who actually owns it. With a normal bond, a record of the owner is recorded and the individual receives regular payments. However, bearer bonds function like cash in that they can be owned anonymously. While a bearer bond does not expire per se, it may be hard to cash depending on who issued it.
When a person holds a a bearer bond, he does not have money deposited directly into his account, as with other bonds. Instead, the person must clip the coupons at the appointed time – usually every six months – to redeem scheduled interest payments. When the bond matures, then the person can cash it in for principal and for the last interest payment.
A bearer bond, like all bonds, will at some point mature. At this point, the person will receive the principal that he gave to the bond issuer when he first took out the bond, and sometimes a final interest payment. A person will generally have a set window in which to claim his interest payments. However, a mature bond can generally be redeemed for principal as long as the bond issuer still exists.
A bond issuer will not be responsible for making payments on a bearer bond coupons if the holder does not turn them in on the appointed date. In some cases, a bond may be called early, in which case the principal and final interest payment is paid out early. If a person misses this call, then the bearer bond issuer is not responsible for paying the interest, only the principal.
While a bond may never technically expire, it can often be very difficult to redeem bearer bonds, because many banks no longer deal in them. Since the 1980s, companies in the United States have not issued bearer bonds, and many banks refuse to cash them in. Also, if the bond is very old and the issuer no longer exists, it may be hard to redeem the bond.
- "Economics"; Roger A. Arnold; 2009