Held-to-Maturity (HTM)

Held-to-Maturity (HTM) Securities

Held-to-maturity (HTM) securities are debt investments purchased with the intent and ability to hold them until their stated maturity date. Typical HTM instruments include bonds and certificates of deposit (CDs). Because they have fixed payment schedules and a maturity date, they are treated differently in accounting and offer predictable income for investors who do not need short-term liquidity.

Key takeaways

• HTM securities are bought to be held until maturity and are usually bonds or CDs.
• They provide a fixed, predictable income stream but limit the ability to benefit from rising market rates.
• For accounting, HTM investments are reported at amortized cost (not fair value) and are noncurrent assets unless they mature within one year.

How HTM securities work

• Types: Primarily bonds and other fixed‑term debt instruments; stocks do not qualify because they lack a maturity date.
• Cash flows: Pay fixed interest according to a schedule; principal is returned at maturity.
• Investor intent: Must be held to maturity—temporary price fluctuations in the market are not recognized in a company’s financial statements for HTM holdings.
• Accounting classification: Corporations categorize securities as held-to-maturity, available-for-sale, or held-for-trading. HTM securities are carried at amortized cost; available-for-sale and trading securities are reported at fair value.

Accounting treatment

• Amortized cost: The carrying value reflects acquisition cost adjusted over time (amortization).
• Income recognition: Interest income is recorded on the income statement.
• Balance sheet presentation:
• Reported as noncurrent assets if maturity is more than one year.
• Reported as current assets if maturity is one year or less.
• Market price changes: Temporary market fluctuations do not affect the carrying amount of HTM securities.

Advantages and disadvantages

Pros
* Predictable cash flows and known principal return at maturity facilitate planning.
Generally low risk when issued by high-credit issuers (e.g., governments, strong corporations).
Interest rate on the investment is locked in at purchase.

Cons
* Fixed return prevents benefiting from favorable increases in market interest rates.
Credit/default risk remains if the issuer experiences financial distress.
Not suitable if the investor needs short-term liquidity.

Example

A 10‑year U.S. Treasury note is a common HTM example. Assume a 10‑year Treasury pays 4.5% annually. If a company buys a $1,000, 10‑year Treasury and holds it to maturity, it will receive $45 per year in interest and $1,000 principal at maturity, regardless of future interest rate movements.

When HTM securities are appropriate

HTM securities are suitable for investors or companies that:
* Do not anticipate needing the invested funds before maturity, and
* Prefer predictable income over potential gains from changing market rates.

FAQs

What are examples of HTM securities?
Bonds and CDs with defined maturities are the most common HTM investments; Treasuries and high‑grade corporate bonds are typical examples.

How are HTM securities reported on financial statements?
They are reported at amortized cost. If maturity is over one year, they appear as noncurrent assets; if one year or less, they appear as current assets. Interest income is recorded on the income statement.

Are stocks held as HTM?
No. Stocks lack a maturity date and therefore cannot be classified as held-to-maturity.

Bottom line

Held-to-maturity securities offer stable, predictable returns when an investor intends and is able to hold a fixed‑term debt instrument until maturity. They trade off liquidity and potential gains from rising interest rates for certainty of income and principal repayment.