A certificate of indebtedness is a short-term debt instrument, issued by a government or a corporation, that must be repaid within one year of issuance. For individual investors, the version you’re most likely to encounter is the zero-percent certificate of indebtedness inside a TreasuryDirect account, which works as a holding account for buying savings bonds and other Treasury securities. Corporations issue their own certificates as a form of private borrowing, and those carry different rules, risks, and tax consequences.
Under federal law, the Secretary of the Treasury can issue certificates of indebtedness to borrow money for authorized expenditures, set their interest rates and terms, and allow early redemption under prescribed conditions. Each certificate must mature within one year of the date it’s issued.1Office of the Law Revision Counsel. 31 USC 3104 – Certificates of Indebtedness and Treasury Bills That one-year cap is what separates a certificate of indebtedness from Treasury notes (two to ten years) and Treasury bonds (20 or 30 years).
The TreasuryDirect Zero-Percent Certificate
The zero-percent certificate of indebtedness is a non-interest-bearing security the Treasury issues daily with a one-day maturity, automatically rolling over each day until you redeem it.2eCFR. 31 CFR Part 363 Subpart D – Zero-Percent Certificate of Indebtedness It’s a holding tank. Money moves from your bank into the certificate, sits there earning nothing, and then funds your purchase of savings bonds, Treasury bills, notes, or other eligible securities.
A few rules shape how you use it. The minimum purchase is one cent. Each Buy Direct transaction from your bank account is capped at $1,000. After you fund a certificate through an ACH transfer, you can’t schedule a redemption back to your bank for five business days. You can’t transfer a zero-percent certificate to another person’s TreasuryDirect account, and you can’t pledge it as collateral.2eCFR. 31 CFR Part 363 Subpart D – Zero-Percent Certificate of Indebtedness
Because the balance earns nothing, holding money in a zero-percent certificate longer than needed carries an opportunity cost. It’s designed as a pass-through, not as savings.
The March 2026 Change
As of March 1, 2026, the Certificate of Indebtedness is no longer available to select as a new payment destination in TreasuryDirect.3TreasuryDirect. FAQs About Certificates of Indebtedness If you held one before that date, check the TreasuryDirect FAQ for what happens to your existing balance and how to fund future purchases.
SLGS Certificates Are Not for Individual Investors
The Treasury also issues certificates of indebtedness through the State and Local Government Series (SLGS) program, but these are sold exclusively to issuers of state and local government tax-exempt debt. They exist so those governments can invest bond proceeds in a way that complies with IRS yield restriction and arbitrage rebate rules. SLGS certificates run from 15 days to one year; the program also offers notes (one to ten years) and bonds (ten to forty years).4TreasuryDirect. About the State and Local Government Series Securities Individuals can’t buy them.
Corporate Certificates of Indebtedness
Corporations can issue certificates of indebtedness as a form of borrowing. A corporate certificate is a short-term promissory obligation, either secured or unsecured. The board of directors must approve the issuance, and terms are set by state corporate law and the company’s governing documents.
Under the Securities Act of 1933, an “evidence of indebtedness” falls within the statutory definition of a security.5GovInfo. Securities Act of 1933 A corporation issuing certificates to investors must either register the offering with the SEC or qualify for an exemption. Regulation D provides the common exemptions for private placements:
- Rule 504 permits sales of up to $10 million within a 12-month period.
- Rule 506(b) allows unlimited capital raises but caps sales at 35 non-accredited investors in any 90-day period, and each non-accredited purchaser must be financially sophisticated enough to evaluate the investment’s risks.6eCFR. 17 CFR 230.506 – Exemption for Limited Offers and Sales
- Rule 506(c) allows unlimited capital raises with general solicitation, but every purchaser must be an accredited investor, and the issuer must take reasonable steps to verify that status.6eCFR. 17 CFR 230.506 – Exemption for Limited Offers and Sales
Even under an exemption, issuers must file a Form D with the SEC after the first securities are sold, and they remain subject to federal antifraud provisions and state securities laws.
Secured Corporate Certificates
When a corporate certificate is backed by collateral, the Uniform Commercial Code governs how the security interest is created and enforced. Article 8 covers how certificates are issued and transferred between holders.7Legal Information Institute. Uniform Commercial Code Article 8 – Investment Securities Article 9 covers the mechanics of secured transactions, including how a creditor perfects a security interest by filing a UCC-1 financing statement with the state’s Secretary of State office, how priority is established among competing creditors, and how claims against collateral are enforced.8Legal Information Institute. Uniform Commercial Code Article 9 – Secured Transactions
Filing the UCC-1 is the step that matters. Without it, a creditor’s security interest may be unperfected, and other creditors who did file can leapfrog ahead in priority. In bankruptcy, that ordering determines who gets paid first. UCC-1 filing fees vary by state, typically ranging from $5 to $40.
How Certificates of Indebtedness Are Taxed
If You Hold One as an Investor
Interest income from certificates of indebtedness is subject to federal income tax in most cases. Certificates issued by state or local governments may qualify for the federal tax exclusion under Section 103 of the Internal Revenue Code, which excludes interest on state or local bonds from gross income.9Office of the Law Revision Counsel. 26 USC 103 – Interest on State and Local Bonds For investors in higher brackets, that exclusion can make a lower-yielding municipal certificate competitive on an after-tax basis with a taxable alternative.
The zero-percent TreasuryDirect certificate pays no interest, so holding one triggers no taxable event. Tax consequences begin only when you use those funds to buy an interest-bearing security and that security starts earning.
If You Issue One
Interest paid on certificates of indebtedness is generally deductible as a business expense under Section 163 of the Internal Revenue Code, which allows a deduction for all interest paid or accrued on indebtedness during the taxable year.10Office of the Law Revision Counsel. 26 USC 163 – Interest For corporate issuers, this directly reduces taxable income and the effective cost of borrowing.
Reporting
Issuers paying $10 or more in interest during the year must file Form 1099-INT with the IRS and provide a copy to the recipient. For 2026, the general reporting threshold for certain other information returns rose from $600 to $2,000, but the $10 threshold for interest income on Form 1099-INT remains in place for most situations.11Internal Revenue Service. General Instructions for Certain Information Returns (2026)
Default, Transfer, and Payoff
Holders of certificates of indebtedness have the right to repayment of principal at maturity plus any accrued interest. Government-issued certificates carry essentially zero credit risk because they’re backed by the full faith and credit of the issuing government. Corporate certificates carry the credit risk of the issuing company, which is why the terms of issuance, collateral, and financial health of the issuer all matter.
When a corporate issuer defaults, holders can pursue breach of contract claims in court. Many certificates include acceleration clauses that let the holder demand immediate repayment of the entire balance if the issuer becomes insolvent, files for bankruptcy, or breaches certain covenants. For secured certificates, the holder can enforce its claim against the pledged collateral under UCC Article 9 procedures, and a properly perfected security interest gives the holder priority over unsecured creditors in bankruptcy.8Legal Information Institute. Uniform Commercial Code Article 9 – Secured Transactions There is no uniform federal statute of limitations for enforcing a debt contract; each state sets its own deadline for breach-of-contract claims, and waiting too long can forfeit the right to sue.
Transferability depends on the type. Corporate certificates governed by UCC Article 8 are generally transferable, and the UCC lays out how certificated and uncertificated securities change hands.7Legal Information Institute. Uniform Commercial Code Article 8 – Investment Securities TreasuryDirect zero-percent certificates are completely nontransferable. You can’t gift one or move it between accounts.2eCFR. 31 CFR Part 363 Subpart D – Zero-Percent Certificate of Indebtedness SLGS securities are similarly restricted.
A certificate terminates when the issuer repays principal and any accrued interest at maturity. For a zero-percent TreasuryDirect certificate, that happens whenever you redeem to buy a security or withdraw funds back to your bank. Corporate certificates may also terminate early through refinancing or through call provisions that let the issuer repay before maturity, sometimes with a premium to compensate the holder for lost interest.
When a secured corporate certificate is paid off, the secured party must release its claim on the collateral. Under UCC ยง 9-513, the secured party must file a termination statement within 20 days of receiving an authenticated demand from the debtor, or within one month after no obligation remains secured by the collateral, whichever comes first.12Legal Information Institute. UCC 9-513 – Termination Statement If the secured party ignores the demand, the debtor can file the termination statement directly with the secretary of state. Leaving an old UCC filing in place after the debt is satisfied can cloud your credit profile and complicate future borrowing, so it’s worth confirming the termination is on record.