Understanding premium bonds
Every bond has a face value, a term, and an interest rate. When you buy a bond, you receive interest payments, typically every six months, for the entire term. Once the bond matures, you receive the face value. If the bond has a face value of $10,000, that’s how much you would receive on the maturity date.
Bonds are also traded on the secondary market, where their prices fluctuate. A bond that costs more to buy than its face value is a premium bond. For example, a $10,000 bond that’s trading for $11,000 has a $1,000 premium. You need to pay more for the bond than the amount you receive when it matures. A discount bond, on the other hand, is one trading for less than its face value.