A security (financial security) that carries or provides interest payment at a fixed rate. The coupon rate of a fixed rate security is fixed for the term/ life (the fixed maturity) of the security. Realization of the full potential of such a security depends on whether it is held to maturity or not.

If held to maturity, it offers the benefits of capital preservation (principal) and certainty of cash flow. Prior to maturity, the market value of fixed-rate securities is bound to fluctuate with changing interest rates. In a falling-rate environment, market values will rise, with the proportion of increase depending on the amount of time remaining to maturity or call date (if applicable), creating the potential for capital gains. In a rising-rate environment, market values (prices) will fall, giving rise to the risk of loss when securities with now lower market value are sold prior to maturity.

A typical example is a treasury note: it pays a fixed rate over its tenure and hence provides a reliable coupon income. All US Treasury notes pay semiannual coupons, with the principal promised to be paid back in full at maturity. The amount of the income or cash flow (from such a security) is a function of its coupon rate, which is set when the security is issued.