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STRIPs

STRIP stands for Separate Trading of Registered Interest and Principal of Securities. They are zero coupon bonds sold as derivatives of US treasury bonds. They split the interest and principal of treasury bonds. The principal security is then sold at a discount. The interest is paid to holders of the balancing security, which are called TINTs.

Like other zero coupon bonds, STRIPs are well suited to funding specific needs such as college, retirement, etc. In many states, the interest is free of state income taxes, but federal income tax is still due each year even though no interest payment is received. Hence STRIPs often work best in a tax deferred account, such as an IRA or a Roth IRA.

TINTs provide additional income to the income oriented investor.

These derivatives are sold by financial institutions and brokers, not by the US Treasury.

For additional information see the Treasury Direct website: [[1]]

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