What is a coupon? Definition and meaning

The word coupon has several different meanings, depending on the context. It can mean a voucher, ticket or document that can be redeemed for a rebate or discount when buying something, the yearly interest paid on a bond, or a form in a magazine, newspaper or advertisement that may be filled in, cut out and sent as an application for information, a free sample or a purchase.

In metallurgy, the term refers to a metal or metalwork sample submitted to a testing agency or customer for approval.

Etymology of coupon

According to the Etymology Online Dictionary, the term first appeared in the English language meaning a ‘certificate of interest due on a bond’ in 1822, which the owner could cut from the bond and present for payment.

The word came from French Coupon, which means ‘a piece cut off’. Couper in French means ‘to cut’, while Coup means a ‘blow’. In the 1860s, British travel agent Thomas Cook started using the term for a ‘discount ticket’.

It was not until 1906 that its meaning also widened to include forms in newspapers, magazines or adverts that people filled in. The French word Coup originated from Medieval Latin Colpus, from Colapus and Colaphus, which in Vulgar Latin and High Latin respectively meant ‘a cuff, a box on the ear’.

Coupon of a bondIn the 1860s, the Confederate States of America needed to raise money to finance their massive war effort. They sold bonds. Attached to the Confederate Bond in the image above you can see twelve coupons worth $20 each. At scheduled dates, the owner would tear one of them off, present it, and receive his or her money. (Image: scripophily.com)

Coupon on a bond

A coupon payment on a bond is a quarterly, half-yearly, or annual interest payment that the bondholder receives during its life – from when it is purchased until it matures.

Bonds were historically issued in the form of bearer certificates. In a bearer certificate, the owner’s name is not officially recorded, but he or she is considered to be the person who has it in their possession, i.e. proof of ownership is confirmed simply by possessing the document.

A number of coupons, one for each pre-arranged payment over the bond’s life, were attached to the certificate.

Coupon vouchersCoupons used to exist only in magazines, newspapers and printed adverts. Today, you can download them onto your smartphone, tablet or laptop.

On each one’s due date, the owner would tear it off and present it for payment. The act of tearing it off was known as ‘clipping the coupon’.

Some bonds, such as zero-coupon bonds, have no coupons. These bonds make just one payment – the payment of the face value on their maturity date.

The coupon rate, when referring to a bond, is the annual interest rate, which is generally paid on a semiannual basis.

The rate is stated when the bond is issued until it reaches maturity. Bonds are types of IOUs or debts that governments, municipalities and companies sell and people purchase.

According to the Financial Times’ Lexicon (glossary of terms), a coupon is:

“Interest paid on a bond through to maturity, expressed as a percentage of the face value.”

Love coupon bookThe Dating Divas says that purchasing gifts for a spouse can be one of the most difficult tasks out there. It suggests that DIY love coupons – which you can use to create messages and treats of your own – could be a great gift idea. (Image: thedatingdivas.com)

Although the terms coupon and voucher are used interchangeably today, technically there is a difference in their usage.

Love coupon

Love coupons are used for telling somebody you love them. They are a form of voluntary IOU or promissory note between individuals who are in love.

They contain a promise from one of the partners in a relationship to engage in a romantic activity at a specific future time.

Love coupons typically have a relevant artistic drawing or image, a love-promise or a pledge to perform a romantic or intimate act, and sometimes also redeeming conditions such as a date of expiration. Apart from serving as a love note, they may also be used as a very specialized form of greeting card.

The love coupon may have a romantic-event value, such as a full body massage, a romantic afternoon picnic, an afternoon at a spa, a candlelight dinner, or other more intimate and sensual treats.

A Test Coupon is a printed circuit board used when testing the quality of a printed wiring board (PWB) fabrication process. They are fabricated on the same panel as PWBs, usually at the edges. They are then inspected to make sure the layers are aligned properly, all the circuits connect correctly, and cross-sectioned to inspect internal structures.

‘Coupon’ in other languages: Cupón (Spanish), Cupom (Portuguese),  buono (Italian), Coupon (French), Coupon (German), Купон (Russian), Kupong (Swedish, Indonesian, Malay, Filipino, Polish), Kupón (Czech), クーポン (Japanese), 优惠券 (Chinese), Cheti (Swahili), كوبون (Arabic), कूपन (Hindi), and কুপন (Bengali).

Video – What is a coupon?

This Investopedia video explains what a coupon is – when it refers to the interest rate on a bond. They used to be rectangles of paper attached to bonds that the owner would tear off, present each one at a specified date, and get paid.