Accrued Interest Calculator

An accrued interest calculator works out the interest that has built up on a bond or loan between the last coupon payment date and the settlement date. It is used by bond traders, investors, and accountants who need to calculate the interest component when buying or selling a bond between coupon payment dates.

How to Use the Accrued Interest Calculator

1. Enter the bond's face value (par value).
2. Enter the annual coupon rate as a percentage.
3. Enter the last coupon payment date.
4. Enter the settlement date (the date the trade settles).
5. Select the day-count convention used by the bond (30/360, Actual/365, or Actual/360).
6. Click calculate to see the accrued interest amount.

The Formula

Accrued interest = Face Value x (Coupon Rate / Coupon Frequency) x (Days Since Last Coupon / Days in Coupon Period)

The day-count convention determines how "days" are counted:

Actual/Actual: counts actual calendar days in the numerator and denominator. Used for most government bonds including UK Gilts and US Treasuries.

30/360: treats each month as 30 days and each year as 360 days. Common for corporate bonds.

Actual/365: counts actual days in the numerator, uses 365 for the denominator regardless of leap years.

Real-World Example

A corporate bond with a face value of £100,000, 5% annual coupon, semi-annual payments (every 6 months), and a 30/360 day-count convention.

Last coupon date: 1 January. Settlement date: 1 April (90 days later on 30/360 basis). Coupon period: 180 days.

• Semi-annual coupon: £100,000 x 5% / 2 = £2,500
• Accrued interest: £2,500 x (90 / 180) = £1,250

When the buyer purchases this bond, they pay the clean price (the quoted market price) plus accrued interest of £1,250. The seller receives this accrued interest because they held the bond for 90 of the 180 days in the coupon period.

Clean Price Versus Dirty Price

When bonds are traded, two prices are relevant. The clean price is the quoted market price, which excludes accrued interest. The dirty price (also called the full price or invoice price) is what the buyer actually pays: clean price plus accrued interest. Bond prices in financial media and trading platforms are almost always quoted as clean prices, but settlement is always at the dirty price. This convention exists so that a bond's quoted price does not jump dramatically on coupon payment dates. If the dirty price were quoted, it would rise steadily between coupons and fall sharply on each payment date, making price trends harder to interpret. Understanding this distinction is essential when comparing bond yields and prices.

The Mechanics of Bond Settlement

A bond trade settles on a predetermined date after the trade date, typically T+1 or T+2 in modern markets. When the trade settles, the buyer pays the dirty price and the seller receives it. The settlement date determines how many days of accrued interest have accumulated since the last coupon. For example, if a trade is executed on a Wednesday and settles on a Thursday, the buyer owes accrued interest for the one day between the last coupon and the trade date (or in some conventions, between the trade date and settlement date).

Exchange-cleared bonds in the UK and US settle T+1 as of recent market reforms. This compresses the timeline but does not change the underlying accrued interest calculation. The bond's ex-dividend or ex-coupon date typically falls one or two business days before the record date, after which the buyer does not receive the upcoming coupon.

Zero-Coupon and Accrued Interest

Zero-coupon bonds do not pay periodic coupons, so the concept of accrued interest is technically absent. However, the underlying accounting recognises that the bond's price accretes towards par over time as the issuer's repayment obligation approaches. This accretion is treated as imputed interest for tax purposes in many jurisdictions, which the accrued interest calculator does not handle; a separate zero-coupon bond calculator is needed for that calculation.

Common Use Cases

Accrued interest calculations are essential for: bond traders settling trades between coupon dates; accountants preparing period-end financial statements; investors tracking the running cost of holding debt securities; and tax advisers computing the income component of bond returns. Understanding accrued interest also helps individual investors avoid surprises when buying bonds through a brokerage, particularly when the platform does not break out the accrued interest component clearly.

Frequently Asked Questions

Why does the buyer pay accrued interest to the seller? When a bond changes hands between coupon dates, the seller has held the bond for part of the current coupon period and is entitled to the interest earned during that time. Since the full coupon will be paid to whoever owns the bond on the next payment date (the new owner), the buyer compensates the seller at purchase by paying the accrued interest on top of the clean price.

What happens to accrued interest on the coupon payment date? On a coupon date, the accrued interest resets to zero. The bondholder receives the full coupon payment, and the dirty price equals the clean price. This is why bond prices sometimes appear to fall on coupon dates; in reality, the dirty price falls by the coupon amount (which has been paid out), while the clean price may remain stable.

Does accrued interest affect my tax position? In the UK, accrued interest paid when buying a bond is treated as a capital element (reducing the effective purchase cost) and the accrued interest received when selling is taxed as income in most circumstances. This can affect the split between income and capital gains on bond investments. The accrued income scheme applies to most UK investors holding interest-bearing securities. HMRC guidance or a tax adviser should be consulted for specific positions.

How does the day-count convention affect the accrued interest calculation? Different conventions count days differently, leading to slightly different accrued interest amounts. The difference is small but matters for large bond positions. UK Gilts use Actual/Actual, which counts real calendar days. Corporate bonds often use 30/360, where every month is treated as exactly 30 days. Using the wrong convention will produce an incorrect accrued interest figure and therefore an incorrect settlement amount.

Worked example: one bond across three day-count conventions

Take a corporate bond with £100,000 face value and a 5% annual coupon paid on 1 January and 1 July. Settlement falls on 1 May 2024, so the elapsed part of the period runs from 1 January to 1 May and the full coupon period runs from 1 January to 1 July.

The semi-annual coupon is £100,000 x 5% / 2 = £2,500.

On a 30/360 basis, 1 January to 1 May counts as 4 x 30 = 120 days out of a 180-day period, so accrued interest is £2,500 x 120 / 180 = £1,666.67.

On an Actual/Actual basis, 1 January to 1 May 2024 is 121 calendar days (31 + 29 + 31 + 30, with 2024 a leap year) and the coupon period is 182 days, so accrued interest is £2,500 x 121 / 182 = £1,662.09.

On an Actual/365 basis, the annual coupon of £5,000 accrues across 121 days out of 365, so accrued interest is £5,000 x 121 / 365 = £1,657.53.

| Convention | Days counted | Denominator | Accrued interest | | 30/360 | 120 | 180 | £1,666.67 | | Actual/Actual | 121 | 182 | £1,662.09 | | Actual/365 | 121 | 365 | £1,657.53 |

The widest gap in that table is £9.13 on a £100,000 holding. Scale the same calculation to a £50 million trade and the choice of convention moves about £4,566.

The conventions can also agree exactly. Move settlement to 1 April 2024 and 91 actual days have passed out of 182, which is one half of the period. On 30/360, 90 days have passed out of 180, also one half. Both conventions return £1,250.00.

Two assumptions sit under that calculation. The coupon rate is the rate in force for the current period, so a floating-rate note that resets at the next coupon date cannot be projected past that date. The calculation also assumes settlement falls inside the coupon period, and it ignores the ex-coupon rule that shifts the next coupon to the seller for trades settling on or after the ex-coupon date.

Also try these free tools related to Accrued Interest Calculator: - Bond Price Calculator

• Interest Calculator

Day-Count Conventions in Detail

The choice of day-count convention has grown up around the practical needs of different markets and historical accounting practice. Actual/Actual is the most precise and is mandatory for many government bond markets because it deals fairly with leap years. UK Gilts use an Actual/Actual convention, while US Treasuries use a variant that calculates accrued interest on the basis of the actual number of days in the coupon period. Corporate bonds in the US most commonly use 30/360, which simplifies the math into a predictable pattern. Money market instruments often use Actual/360, which produces a slightly higher effective annual rate than Actual/365 because the same dollar amount of interest is divided over fewer days in the count.

The choice of convention does not affect the cash coupon paid at the end of the period; it only affects how the accrued interest is calculated when the bond is bought or sold mid-period. For an investor buying a bond with several months to the next coupon, the difference between conventions can be a few basis points of price, which compounds for institutional-sized positions.

Floating-Rate Notes

Floating-rate notes (FRNs) have coupons that reset periodically based on a reference rate such as SOFR, SONIA, or EURIBOR. The accrued interest for an FRN is calculated on the basis of the most recent coupon rate for the days elapsed in the current period. Because the rate may change at the next reset, the accrued interest value can shift overnight, which is part of why FRNs tend to price closer to par than fixed-coupon bonds and have lower duration risk.