Accrued Interest
Accrued interest is interest that has built up on a debt but hasn't been paid yet. When a bond is bought between coupon dates, the buyer pays the seller the interest earned since the last coupon, on top of the quoted (clean) price.
Bonds pay coupons only once or twice a year, but interest is earned every day. So when you buy a bond halfway between payments, who gets the interest? The answer is accrued interest: the buyer compensates the seller for the days they held it. This entry explains how accrued interest is calculated and the difference between clean and dirty prices.
- Category
- Bonds and Interest Rates
- Reading time
- 3 min
- Also called
- Accrued coupon, Dirty price, Clean price
- Updated
Accrued interest in plain words
Accrued interest is interest generated on a debt over a period that hasn't yet been paid or received.1
Under accrual accounting, it is the interest incurred or earned in a reporting period regardless of when it's paid.1
For bonds, accrued interest and regular interest differ in timing: one has built up, the other is actually paid on coupon dates.2
How to calculate bond accrued interest, step by step
Find the coupon
Annual coupon ÷ payments per year. See Coupon Rate.
Count days since last coupon
Using the bond's day-count convention.
Days in the coupon period
E.g. about 182 for semi-annual.
Accrued = coupon × days ÷ period days
The seller's share.
Add to clean price
Gives the dirty (invoice) price.
Buyer gets full coupon
On the next payment date.
Worked examples
Example 1 — Calculating accrued
$10A $1,000 bond pays 6% semi-annually ($30). 60 days have passed in a 180-day period.
| Accrued interest | $30 × 60 ÷ 180 = $10 |
Accrued interest is the interest earned so far but not yet paid.1
Example 2 — Clean vs dirty price
$995 paidSame bond quoted at $985 clean.
| Clean price | $985 |
| Accrued | +$10 |
| Dirty price paid | $995 |
The buyer pays the quoted price plus interest accrued to the seller. See Par Value.
Example 3 — Getting it back
$20 earned120 days later the buyer receives the full $30 coupon.
| Coupon received | $30 |
| Minus accrued paid | −$10 |
| Net interest for holding period | $20 |
Each owner ends up with interest only for the days they held the bond. See Bond.
Clean price vs dirty price
| Aspect | Clean price | Dirty price |
|---|---|---|
| Includes accrued interest | No | Yes |
| Used for | Quotes | Actual payment |
| Jumps on coupon dates | No | Yes |
| Also called | Flat price | Full or invoice price |
Where accrued interest matters
Bond trading
Settling trades fairly. See Bond.
Accounting
Recording interest earned or owed.
Loans
Interest building up between payments.
Fund NAV
Bond funds accrue interest daily. See Net Asset Value.
Advantages and disadvantages
Advantages
- Fair split of interest between buyer and seller.
- Clean quotes are comparable.
- Matches income to the period earned.
Disadvantages
- Adds complexity to trades.
- Day-count conventions vary.
- Easy to confuse clean and dirty prices.
Going deeper
Read as far as you need. Each level builds on the one before it.
Earned but unpaid
Beginner
The key idea: interest builds up daily but is paid only on set dates.1
Day-count conventions
Intermediate
Treasuries usually use actual/actual, many corporate bonds 30/360, which changes the accrued figure slightly. See Treasury Bills, Notes and Bonds.
Ex-coupon periods
Advanced
Some markets have ex-coupon periods where the buyer won't receive the next coupon, making accrued interest negative. See Ex-Dividend, Record and Payment Dates.
Common mistakes
Ignoring accrued in cost
You pay the dirty price.
Mixing day-count rules
Check the bond's convention.
Treating accrued as profit
It's a timing transfer.
Comparing dirty and clean quotes
Compare like with like.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- Accrued interest is earned but not yet paid.
- Bond buyers pay it to sellers between coupons.
- Dirty price = clean price + accrued.
- Each holder keeps interest for their holding days.
- Day-count conventions matter.
Frequently asked questions
Is accrued interest taxable?
Why quote clean prices?
Does accrued interest apply to loans?
Further learning
- Coupon Rate
What accrues.
- Par Value
The coupon base.
- Yield to Maturity
Full return on a bond.
- Bond
Bond basics.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- Corporate Finance Institute. Accrued Interest (opens in a new tab) Checked .
- Corporate Finance Institute. Accrued Interest vs Regular Interest (opens in a new tab) Checked .
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.