Yield to Maturity
What is yield to maturity?
Yield to maturity is the total return you’ll get when you purchase a bond and hold it until it matures. It takes into account all the interest payments from the time you make the investment to the date it ends, including the amount of compound interest earned.
Where have you heard about yield to maturity?
Yield to maturity is often used by investors to estimate whether purchasing a bond is a good buy or not. It’s also used to compare bonds that have different maturities and coupon interest rates.
What you need to know about yield to maturity.
Although the interest rate of a bond is usually fixed, the price of the bond can rise and fall. A yield to maturity calculation includes any appreciation or depreciation in that price. Since it reflects the total return on a bond from purchase to maturity, it's generally thought to be more telling for investors than current yield, which is just the annual return earned on the price paid for the bond.
When considering purchasing an individual bond, remember that it’s the yield to maturity that really counts as this shows you what you’ll actually get paid.
Find out more about yield to maturity.
Read our definition of current yield to see how it differs from yield to maturity