The simple version

A regular Treasury note or bond pays you interest every six months and then returns your principal at the end. A STRIPS takes that security apart. The principal and each interest payment become separate securities, each traded on its own.

Each of those pieces is a zero-coupon security. It pays nothing along the way. You buy it for less than its face value, and it pays that one fixed amount on a single future date. STRIPS stands for Separate Trading of Registered Interest and Principal of Securities, which is exactly what the structure does.

The numbers

• STRIPS stands for Separate Trading of Registered Interest and Principal of Securities (U.S. Treasury, TreasuryDirect)
• Each separated piece is a zero-coupon security that matures separately and has only one payment (U.S. Treasury, TreasuryDirect)
• A bond with 10 years left to maturity has one principal payment and 20 interest payments, so stripping it creates 21 separate securities, each with its own identifying number (U.S. Treasury, TreasuryDirect)
• Notes, bonds and TIPS can be stripped; Treasury bills and floating rate notes cannot (U.S. Treasury, TreasuryDirect)
• You can buy, hold, sell and redeem STRIPS only through a financial institution, broker or dealer; they cannot be created in TreasuryDirect, and the minimum face amount to strip is $100 (U.S. Treasury, TreasuryDirect)
• A stripped security can be reassembled into a single security again once a financial institution, broker or dealer holds every remaining piece (U.S. Treasury, TreasuryDirect)
• Zero-coupon bonds are bought at a deep discount from their face value, the amount paid at maturity, and their prices fluctuate more than other types of bonds in the secondary market (U.S. Securities and Exchange Commission, Investor.gov)

Why a zero-coupon piece behaves differently from a normal bond

A normal Treasury hands you cash twice a year. That is convenient, but it means you have to do something with each payment, and what you earn on it depends on rates at the time. A STRIPS removes that question. There is one payment, on one date, for one set amount.

That certainty is the appeal. If you know you need a specific sum on a specific future date, a STRIPS can be matched to it: the piece that matures then pays its face amount on that date, whatever rates do in between. There is nothing to reinvest along the way, because nothing is paid along the way.

The trade-off is price movement before maturity. All of a STRIPS's value sits in one distant payment, with no interest arriving in the meantime, and the SEC notes that zero-coupon prices fluctuate more than other types of bonds. So a STRIPS can swing more in value if you sell before it matures, even though the amount it pays at maturity is fixed.

The actual math on a $10,000 STRIPS

A zero's whole story is one price today and one payment later, so the math is easy to show. Here is an illustration with round numbers, not a quote of any real price.

• Goal: have $10,000 on a set date 10 years from now (example figures)
• At an example yield of 4.5% a year, compounded once a year for simplicity, the piece maturing then would cost roughly $6,440 today (our calculation: 10,000 divided by 1.045 to the 10th power)
• You pay about $6,440 now and receive $10,000 at maturity; the roughly $3,560 difference is the return, set at purchase (our calculation)
• The 4.5% is an example rate chosen to show the math, not today's yield, which changes daily (our note)

The point is the shape of the deal: one price in, one fixed amount out, on a date you choose. What you give up is any cash in between, and some price stability if you sell early.

What this means

STRIPS turn a Treasury into a single, dated payout. For someone matching money to a known future need, that fixed, nothing-to-reinvest structure is the whole appeal, and the larger price swings before maturity are the cost of it.

The durable point is that a bond is really a bundle of separate future payments. STRIPS make that literal by trading each one on its own, which is a clear window into what a bond actually is underneath.

What this is NOT

This is not advice to buy, sell, or hold STRIPS, zero-coupon securities, or any other investment, and it is not a prediction of interest rates or bond prices. It explains what Treasury STRIPS are and how they are structured, as the U.S. Treasury and the SEC describe them. The $10,000 example and the 4.5% yield are round numbers chosen to show the math, not a quote or today's rate, and that calculation is ours. It does not cover the tax treatment of STRIPS or other zero-coupon securities, which is a separate question for a tax professional. This is not a political endorsement or criticism of anyone.

Sources

• U.S. Treasury, TreasuryDirect, STRIPS (Separate Trading of Registered Interest and Principal of Securities), read November 11, 2026: https://www.treasurydirect.gov/marketable-securities/strips/
• U.S. Securities and Exchange Commission, Investor.gov, Zero Coupon Bond, read November 11, 2026: https://www.investor.gov/introduction-investing/investing-basics/glossary/zero-coupon-bond