To calculate accrued interest on a bond, multiply the bond’s periodic coupon payment by the fraction of the current coupon period that has already passed. In formula form: Accrued Interest = (Annual Coupon Rate × Par Value ÷ Payments Per Year) × (Days Since Last Coupon ÷ Days in Coupon Period). The first half gives you the full coupon the bond will pay next; the second half gives you the seller’s share of it based on how long they held the bond since the last payment. When you buy a bond between coupon dates, you owe the seller that amount on top of the bond’s quoted price.
What You Need Before You Run the Numbers
Five inputs drive every accrued interest calculation, and all of them appear on your trade confirmation or in the bond’s offering documents:
- Par value. Corporate bonds typically use $1,000 per bond. Municipal bonds are usually issued in $5,000 minimum denominations, though some are issued at $1,000.1Municipal Securities Rulemaking Board. Municipal Bond Basics2Municipal Securities Rulemaking Board. How Are Municipal Bonds Quoted and Priced
- Annual coupon rate. The fixed percentage of par the issuer pays each year. A 5% coupon on a $1,000 bond means $50 per year.
- Payment frequency. Most U.S. bonds pay semiannually, splitting the annual interest into two equal payments.
- Last coupon date. The most recent date a coupon was paid. This starts the accrual window.
- Settlement date. When ownership actually transfers. Most trades settle one business day after the trade date (T+1) under SEC Rule 15c6-1; government and municipal securities are technically exempt but generally follow T+1 in practice.3U.S. Securities and Exchange Commission. Shortening the Securities Transaction Settlement Cycle4FINRA. Understanding Settlement Cycles – What Does T Plus 1 Mean for You
Use the settlement date, not the trade date, when counting days since the last coupon. That’s the date the bond actually changes hands.
Pick the Right Day Count Convention
The day count convention decides what “days since the last coupon” and “days in the coupon period” mean. Get this wrong and every other step is wrong.
30/360 for Corporate and Municipal Bonds
Corporate, municipal, and agency bonds in the U.S. use 30/360, which treats every month as 30 days and every year as 360. For municipal bonds, MSRB Rule G-33 requires this method.5MSRB. Rule G-33 Calculations The rule’s day count formula is:
Days = (Y2 − Y1) × 360 + (M2 − M1) × 30 + (D2 − D1)
A full semiannual period is always exactly 180 days under this convention, no matter which months it spans.
Actual/Actual for Treasury Bonds
U.S. Treasury securities use Actual/Actual, which counts the real calendar days in both the accrual period and the coupon period.6U.S. Department of the Treasury. Interest Rates – Frequently Asked Questions A 31-day month contributes 31 days, February contributes 28 or 29, and the denominator reflects the actual length of that specific half-year, not a fixed 180.7eCFR. 31 CFR Appendix B to Part 356 – Formulas and Tables Two Treasuries with identical coupon rates can produce slightly different daily interest amounts depending on whether their coupon period crosses a leap year or spans months of different lengths.
Worked Example: Corporate Bond (30/360)
Terms for the bond you’re buying:
- Par value: $1,000
- Annual coupon rate: 6%
- Payment frequency: Semiannual, with coupons on March 1 and September 1
- Last coupon date: March 1
- Settlement date: July 15
Step 1. Calculate the periodic coupon payment. (0.06 × $1,000) ÷ 2 = $30.00.
Step 2. Count days since the last coupon using the Rule G-33 formula. (7 − 3) × 30 + (15 − 1) = 120 + 14 = 134 days.5MSRB. Rule G-33 Calculations
Step 3. Days in the full coupon period. Under 30/360, a semiannual period is 6 × 30 = 180 days.
Step 4. Apply the formula. $30.00 × (134 ÷ 180) = $30.00 × 0.7444 = $22.33.
You would owe the seller $22.33 in accrued interest on top of the bond’s quoted price.
Worked Example: Treasury Bond (Actual/Actual)
Terms:
- Par value: $1,000
- Annual coupon rate: 4%
- Payment frequency: Semiannual, with coupons on May 15 and November 15
- Last coupon date: May 15
- Settlement date: August 20
Step 1. Periodic coupon payment. (0.04 × $1,000) ÷ 2 = $20.00.
Step 2. Count actual calendar days from May 15 to August 20. May 15–31 = 16 days, June = 30, July = 31, August 1–20 = 20. Total: 97 days.
Step 3. Count actual calendar days in the full coupon period, May 15 to November 15. 16 + 30 + 31 + 31 + 30 + 31 + 15 = 184 days.6U.S. Department of the Treasury. Interest Rates – Frequently Asked Questions
Step 4. Apply the formula. $20.00 × (97 ÷ 184) = $20.00 × 0.52717 = $10.54.
The buyer pays $10.54 in accrued interest to the seller. If the same coupon period had crossed February in a leap year, the denominator would shift and so would the result.
A note on rounding. Corporate and municipal accrued interest is normally rounded to the nearest cent at settlement. Treasury calculations use a stricter rule: five decimal places per $1,000 of par, with the per-$1,000 amount scaled up to the total holding.7eCFR. 31 CFR Appendix B to Part 356 – Formulas and Tables In intermediate steps, carry extra decimals and round only at the end.
Clean Price, Dirty Price, and What You Actually Pay
The price you see quoted on a brokerage screen is the clean price, which excludes accrued interest. The cash amount that leaves your account at settlement is the dirty price:
Dirty Price = Clean Price + Accrued Interest
In the corporate bond example above, if the clean price is $980, the total settlement amount is $980 + $22.33 = $1,002.33. The accrued interest portion is not part of your capital investment; it’s a temporary advance you recover when the next full coupon lands in your account. Checking the accrued interest line on your trade confirmation against your own calculation is the quickest way to catch a broker error before the trade settles.
When Accrued Interest Doesn’t Apply
Two situations break the standard calculation, and both are worth knowing so you don’t apply the formula where it doesn’t fit.
Bonds that trade flat. When an issuer has defaulted, the bond trades “flat,” meaning the buyer pays only the quoted price with no accrued interest added. Accrued interest cannot be included in the bond’s current market value for margin purposes on a defaulted security.8FINRA. Interpretations of Rule 4210 Income bonds, which pay interest only when the issuer earns enough revenue, also commonly trade flat. Confirm with your broker before you assume accrued interest applies.
Zero-coupon bonds. These don’t pay periodic coupons, so the accrued interest formula above doesn’t apply. Instead, the discount between purchase price and face value is treated as Original Issue Discount (OID) and accretes over the life of the bond based on its yield to maturity.9Internal Revenue Service. Guide to Original Issue Discount (OID) Instruments The IRS requires you to include OID in gross income each year even though no cash is paid until maturity.10Office of the Law Revision Counsel. 26 USC 1272 – Current Inclusion in Income of Original Issue Discount Tax-exempt obligations, U.S. savings bonds, and instruments maturing in one year or less are exempt from that annual inclusion rule.
Reporting Accrued Interest on Your Taxes
Accrued interest is ordinary interest income under federal tax law.11Office of the Law Revision Counsel. 26 USC 61 – Gross Income Defined The reporting turns on whether you sold or bought the bond between coupon dates.
If you sold. The accrued interest the buyer paid you is interest income for the year of the sale, not part of your capital gain or loss on the bond itself.12Internal Revenue Service. Publication 550 – Investment Income and Expenses
If you bought. When the next coupon arrives, your Form 1099-INT will show the entire coupon in Box 1, including the portion that’s really a return of the accrued interest you already paid the seller.13Internal Revenue Service. Instructions for Forms 1099-INT and 1099-OID To avoid being taxed on money that wasn’t your income, list the full 1099-INT amount on Schedule B, then subtract the accrued interest you paid to the seller, labeling it “Accrued Interest.”12Internal Revenue Service. Publication 550 – Investment Income and Expenses Keep the trade confirmation showing the accrued interest amount. That’s the document that supports the subtraction if the IRS ever asks.