Held-to-maturity (HTM) debt securities
Held-to-maturity (HTM) securities are debt investments that an entity has the positive intent and ability to hold until maturity. Because the investor does not plan to sell these securities prior to maturity, the accounting focuses on the collection of contractual cash flows rather than changes in market value.
As a result, HTM securities follow an amortized cost model, which provides stability in financial reporting.
Key characteristics
HTM securities have the following defining features:
- Intent to hold to maturity
The investor plans to retain the investment until the principal is repaid. - Ability to hold
The entity must have sufficient financial capacity and no constraints preventing it from holding the investment. - Predictable cash flows
Returns are based on contractual interest and principal payments. - No exposure to income volatility from market prices
Fair value changes are not recognized in earnings or OCI.
HTM classification applies only to debt securities - equity securities have no maturity date, so they can never qualify as HTM.
The intent test fails when an entity plans to sell a security in response to changes in interest rates, liquidity needs, or other market conditions. Selling or transferring an HTM security before maturity - outside narrow exceptions such as a significant deterioration in the issuer’s credit standing - casts doubt on the entity’s intent for the rest of its HTM portfolio. Securities affected this way are typically reclassified as available-for-sale securities and carried at fair value going forward.
Measurement and recognition
Initial recognition
HTM securities are initially recorded at their purchase price (fair value at acquisition), with transaction costs capitalized.
Subsequent measurement
After acquisition, HTM securities are measured at amortized cost, not fair value.
This means:
- The investment is adjusted over time for premium or discount amortization
- Market value changes are ignored for accounting purposes
| Item | Treatment |
| Measurement | Amortized cost |
| Fair value changes | Not recognized (disclosed only) |
| Interest income | Net income (effective interest method) |
Interest income recognition
Interest income for HTM securities is recognized using the effective interest method, which reflects the true economic yield of the investment.
This method:
- Accounts for discounts and premiums
- Allocates interest income over time
- Ensures the carrying value converges to face value at maturity
Because HTM securities are measured at amortized cost, the effective interest method is required and central to their accounting.
Journal entries
To illustrate the accounting for HTM securities, consider the following example.
Example: Company Gamma HTM bond
Company Gamma purchases a bond with the following characteristics:
- Face value: $100,000
- Coupon rate: 5% annually
- Purchase price: $95,000 (discount)
- Market rate: 6%
- Term: 6 years (interest paid annually; amounts are rounded for simplicity)
The investment is classified as HTM because:
- The company has the intent to hold the bond until maturity, and
- The company has the financial ability to do so
Initial recognition
| Account | Debit | Credit |
| Investment in HTM securities | 95,000 | |
| Cash | 95,000 |
Interest income (effective interest method)
- Cash received = 5% × $100,000 = $5,000
- Interest income = 6% × $95,000 = $5,700
- Discount amortization = $700
| Account | Debit | Credit |
| Cash | 5,000 | |
| Investment in HTM securities | 700 | |
| Interest income | 5,700 |
If the bond were bought at a premium instead, the investment account would be credited rather than debited, and interest income would be less than the cash coupon received.
No fair value adjustment
Even if the fair value changes during the period:
- No entry is recorded
- The investment remains at amortized cost
Maturity of the bond
At maturity, the carrying amount equals the face value.
| Account | Debit | Credit |
| Cash | 100,000 | |
| Investment in HTM securities | 100,000 |
Financial statement impact
Balance sheet
HTM securities are reported at amortized cost, which reflects the original purchase price adjusted for discount or premium amortization.
Held-to-maturity (HTM) securities are classified as current or noncurrent based on their remaining contractual maturity from the balance sheet date.
- Those maturing within one year (or the operating cycle, if longer) are presented as current assets
- Those maturing beyond one year are noncurrent assets
If HTM securities have staggered maturities (receivable on different dates), the current and noncurrent portions are typically split accordingly.
HTM investments are not adjusted to fair value, so the balance sheet reflects a stable carrying amount that gradually converges to the bond’s face value over time.
Income statement
The income statement reflects only the economic return from holding the investment, rather than changes in market value.
Specifically, it includes:
- Interest income, recognized using the effective interest method, and
- The effects of discount or premium amortization, which are embedded within interest income
Importantly, no unrealized gains or losses from market price movements are recognized, even if market interest rates change significantly - though, as noted above, expected credit losses are still recognized in earnings through the allowance for credit losses.
This results in stable and predictable earnings, in contrast to trading or AFS securities.
Statement of comprehensive income
HTM securities generate no OCI from fair value changes, since those changes are never recognized. The narrow exception is a security transferred into HTM from AFS: the unrealized gain or loss at the transfer date stays in AOCI and is amortized over the security’s remaining life.