Face-Amount Certificates

Face-Amount Certificate Company is a type of investment firm that issues debt securities to its investors. These securities are called face-amount certificates and are backed by a security interest on assets such as real property or other securities. This is similar in nature to mortgage bond debt financing.

The Face-Amount Certificate Company technique allows a company to obtain financing at relatively low interest rates since its debt is backed by specific tangible assets under the company's control. Much in the way secured bond issuers pay relatively less interest than unsecured debt issuers. Investors who hold face-amount certificates are usually paid a fixed amount of annual interest and are refunded the principal (or face amount) of their securities at a specified termination date.

A face-amount certificate (FAC) is a contract between an investor and an issuer in which the issuer guarantees payment of a fixed (face amount) sum to the investor at some preset future date. In return for this future payment, the investor agrees to pay the issuer a set amount of money either as a lump sum or in periodic installments. If the investor pays for the certificate in a lump sum, the investment is known as a 'fully paid' face amount certificate.

Issuers of these FAC investments are in turn called face-amount certificate companies. Very few face-amount certificate companies operate today because tax law changes have eliminated much of their tax advantages. The most notable financial services companies in the face-amount certificate business today are Ameriprise Financial and SBM Financial Group.

The Investment Company Act of 1940 defines a face-amount certificate company as:
An investment company which is engaged or proposes to engage in the business of issuing face-amount certificates of the installment type, or which has been engaged in such business and has any such certificate outstanding

Think of a face-amount certificate as a debt security in which the certificate is purchased at a discount and redeemed at a future date for the higher face amount. Or, if presented early, the investor will receive the "surrendered value" at that point in time.