Maturity value is the value of a fixed-term security at the end of the term, when the security is said to be “matured.” When the holder of the security redeems the matured security, she will receive the maturity value in cash or another form of compensation by arrangement. There are a number of ways to determine this value, depending on the type of security involved.
A common example of a fixed-term security is a bond. For bonds, the maturity value is the par value, also known as the face value, which is the amount that the bond is issued in. People who invest in bonds buy them when they are released, receive interest payments at set intervals over the lifetime of the bond, and can redeem them at the end of the term for their face value. Some investors opt to sell their bonds or are forced to because they need liquidity and cannot have funds locked up in fixed-term investments.
Certificates of deposit (CD) are another example of a fixed-term investment with a maturity value. In the case of a CD, the maturity value is determined by how much money is deposited into the CD and how much interest accrues. Because the interest is compounded by adding it to the initial balance, each year the CD earns more money. There are calculators available online that people can use to find the maturity value of a CD. These tools usually assume that people are not withdrawing money early. Early withdrawal results in penalties and also lowers the amount of interest payments because the CD has less money in it.
Savings bonds, certain types of annuities, and other fixed-term investments all have a maturity value. When people purchase such investments, they are either provided with a statement of the estimated value at maturity or with information that can be used to calculate it. For example, when a person buys a CD, he is provided with a locked-in interest rate that they can use to find the maturity value.
Such investments have advantages because they generate steady rates of return along with having very predictable maturity values. This can be reassuring to conservative investors. However, they are also highly illiquid. This can pose a problem for people who need cash. While these investments can be sold or broken up early, people will pay penalties. It is advisable to consider whether the funds being invested might be needed before the maturity date.