Definition: Held to maturity securities are investments that management intend to keep for the life of the investment and not sell before they mature or expire.
What Does Held to Maturity Securities Mean?
When a company buys stocks or debt securities as investments, there are several different ways to account for them depending on what type of security they are. Accountants don’t really differentiate between debt and equity securities for investment classifications with the exception of held to maturity securities.
All securities are simply viewed as investments. Accountants differentiate between investments based on what management plans to do with the investments. There are three different categories of investments based on management’s abilities and intentions: trading, available for sale, and held to maturity.
Notice that management can’t just intend to do something with a security. They must actually have the ability to act on their intentions. In other words, if management claims they want to sell their stocks, they must actually have the a market and ability to sell them in order to classify the stocks as trading.
Trading and available for sale securities are debt or equity securities that management intends to sell or trade in the future. Held to maturity securities, on the other, are only debt securities. This is because equity securities don’t have a maturity date. Stocks don’t mature. Debt securities like bonds mature at some point in the future. A held to maturity security is a debt security that management intends to hold on to under it matures. In other words, if a company buys a 10 year bond and management intends to keep it for 10 years, this bond would be classified as a held to maturity security.
Held to maturity securities are reported as long-term assets at amortized cost unless they mature within one year. If the maturity date is in one year or less, held to maturity securities are reported as current assets.