Held To Maturity Security

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WHAT IS ‘Held To Maturity Security’

A held-to-maturity security is purchased with the intention that the buyer—usually a corporation—will own the investment until it matures. This type of security is reported at amortized cost on a company’s financial statements and is usually in the form of a debt security with a specific maturity date.

Unlike held-for-trading securities, temporary price changes for held-to-maturity securities are not shown in corporate accounting statements. Instead, the interest income received from a held-to-maturity security is run through the income statement.

BREAKING DOWN ‘Held To Maturity Security’

A held-to-maturity security is one of the main categories that corporations use to classify their investments in debt or equity securities. Classifications include:

  • held to maturity
  • held for trading 
  • available for sale

The most common form of held-to-maturity investments are bonds. Since stocks do not have a maturity date, they cannot be classified as held-to-maturity securities.

These classifications exist for accounting purposes, as each type of security is treated differently regarding changes in investment value, as well as the related gains and losses, in a company’s financials. Held-to-maturity securities are only reported as current assets if they have a maturity date of one year or less. Otherwise, they are reported as long-term assets and are shown on the balance sheet at the amortized cost (meaning the initial acquisition cost plus any additional costs incurred to date). By contrast, investments held for trade or available for sale are listed at fair value.

Pros and Cons of a ‘Held To Maturity Security’

The appeal (or lack thereof) of these investments depends on several factors, including whether the purchaser can afford to hold this investment until it matures, or if they anticipate having the need to sell or “cash in” before that time.

Pros:

  • Held-to-maturity securities have a predictable, pre-determined return that is locked in at the time of purchase, and therefore is not vulnerable to market fluctuations.
  • These types of securities are considered extremely “safe” investments, with little to no risk.
  • Investors can make long-term financial plans based on these securities, since the purchaser has firm details about when they will see the return, and how much that will be.

Cons:

  • These securities are not good options for investors who may need to liquidate assets in the near future, or who prefer investments that offer the option of cashing in at any time if necessary.
  • The return is fixed and pre-determined, so there is no possibility for unexpectedly high returns even with favorable market conditions.