Accrued Interest
Quick Definition
Interest that has accumulated on a bond since the last coupon payment date but has not yet been paid to the bondholder.
What Is Accrued Interest?
Accrued interest is the interest that has built up on a bond between coupon payment dates. When you buy a bond between payment dates, you pay the seller the market price plus accrued interest — this is known as the "dirty price." The seller is entitled to the interest earned during the period they held the bond, even though the next full coupon payment will go to the buyer. For example, if a bond pays a $50 semiannual coupon and you buy it exactly 3 months after the last payment, you owe the seller approximately $25 in accrued interest. This mechanism ensures fair compensation between buyer and seller regardless of when the trade occurs. Accrued interest is calculated using either a 30/360 or actual/actual day-count convention depending on the bond type.
Accrued Interest Example
- 1A bond with a $1,000 face value and 6% annual coupon accrues $30 every 6 months, or about $5 per month
- 2Buying a Treasury note 45 days after a coupon date means paying 45 days of accrued interest to the seller
Related Terms
Coupon Rate
The annual interest rate stated on a bond, expressed as a percentage of face value, that determines the periodic coupon payments.
Clean Price
The price of a bond excluding any accrued interest, which is the standard way bonds are quoted in the market.
Dirty Price
The total price a bond buyer actually pays, including the clean (quoted) price plus any accrued interest since the last coupon payment.
Coupon Payment
The periodic interest payment made to bondholders, typically paid semiannually based on the bond's stated coupon rate and face value.
Bond
A fixed-income debt security where investors loan money to an issuer in exchange for regular interest payments and return of principal at maturity.
Treasury Bond (T-Bond)
A long-term U.S. government debt security with a maturity of 20 or 30 years, paying semiannual coupon interest.
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