Accrued Interest

Accrued interest is the interest that has been earned on an investment or loan but has not yet been paid out to the investor or lender.

It represents the accumulated interest from the date of the last payment or the start of the investment period up to a specific point in time.

You’ll often see accrued interest in savings accounts, bonds, and other fixed-income investments. For example, if you purchase a bond mid-way through its interest payment period, you’ll likely have to pay the seller the accrued interest that has accumulated since the last payment.

Similarly, when you close a savings account, the bank will pay you any accrued interest earned up to the date of closure. Understanding accrued interest is important for accurately tracking your investment returns and tax obligations.