To calculate accrued interest, multiply the principal by the annual interest rate expressed as a decimal, then multiply that result by the fraction of the year that has passed since the last payment or credit. That is the simple interest formula, and it covers most consumer loans, auto financing, and short-term instruments. Savings accounts, credit cards, and tax debts add a second step because interest itself earns interest, and bond purchases add a third because you may owe the seller for interest that built up before you bought.
The Three Inputs You Need
Every accrued interest calculation depends on three numbers.
The principal is the outstanding balance on a loan or the face value of an investment. For a loan, pull the current balance from your most recent statement. For a bond or certificate of deposit, use the amount you invested or the bond’s par value.
The annual interest rate appears in your Truth in Lending disclosure, which lenders are required to provide under federal Regulation Z.1eCFR. 12 CFR Part 1026 – Truth in Lending (Regulation Z) Convert the percentage to a decimal by dividing by 100, so 5% becomes 0.05.
The time period is the window you are measuring, expressed as a fraction of a year. Ninety days of accrual is 90 divided by 365, or 90 divided by 360 if your contract specifies that convention.
If Your Rate Is Variable
A variable rate is built from a benchmark index plus a fixed margin your lender adds on top. Most variable-rate consumer and commercial loans in the United States now use the Secured Overnight Financing Rate, which replaced LIBOR.2New York Fed (Alternative Reference Rates Committee). An Updated Users Guide to SOFR If SOFR is 3.70% and your margin is 2.00%, your current rate is 5.70%. Check your loan agreement for the margin and the reset schedule, then use the combined rate that applies during the period you are calculating.
The Simple Interest Formula
Interest = Principal × Rate × Time
Say you owe $10,000 at 6% annual interest and want to know how much interest has accrued over 90 days. Multiply $10,000 by 0.06 to get $600 in annual interest, then multiply that by 90/365. The result is about $147.95. If your contract uses a 360-day year, the same calculation returns $150.00, because a smaller denominator produces a slightly higher daily rate.
Simple interest is the standard method for auto loans, personal loans, certificates of deposit, and mortgages. On a mortgage, the lender applies your monthly rate (annual rate divided by 12) to the current balance to determine that month’s interest charge, then whatever is left of your payment reduces the principal. On a $200,000 mortgage at 5%, the first month’s interest is $200,000 × 0.004167, or $833.40. If you are paying off a loan mid-month, the per diem calculation matters: divide the annual interest by 365 and multiply by the days since your last payment. On that same $200,000 balance at 5%, each additional day costs roughly $27.40.
The Compound Interest Formula
Compound interest is calculated on both the original principal and any interest already added to the balance. Savings accounts, credit cards, and IRS tax debts all compound. The formula is:
A = P × (1 + r/n)n×t
- A is the total future value, principal plus accrued interest.
- P is the original principal.
- r is the annual interest rate as a decimal.
- n is the number of times interest compounds per year.
- t is the number of years.
To isolate the interest alone, subtract the original principal: Interest = A − P.
Suppose you deposit $5,000 in a savings account paying 4% compounded monthly, and you want to know the accrued interest after two years. Here n = 12 and t = 2, so the exponent is 24. Inside the parentheses, 1 + (0.04 / 12) = 1.003333. Raise that to the 24th power to get about 1.08314. Multiply by $5,000 for a total of $5,415.70, then subtract the $5,000 you started with. Accrued interest is roughly $415.70.
The same formula works for a tax debt. The IRS compounds underpayment interest daily, so if you plug in n = 365 and the current underpayment rate, you get a realistic figure for what a growing balance actually costs.3Internal Revenue Service. Interest Rates Remain the Same for the First Quarter of 2026
Credit Cards: A Compounding Wrinkle
Credit cards compound daily, but the daily balance they charge against is not fixed. Most issuers use the average daily balance method: the issuer tracks your balance each day of the billing cycle, adds those daily balances together, divides by the number of days in the cycle, and multiplies that average by the daily periodic rate (APR divided by 365).4Consumer Financial Protection Bureau. How Does My Credit Card Company Calculate the Amount of Interest I Owe If you pay your full statement balance by the due date, most cards charge no interest on new purchases. Carry a balance past the due date and you lose that grace period, at which point new purchases start accruing from the transaction date rather than the end of the cycle.5Consumer Financial Protection Bureau. What Is a Grace Period for a Credit Card
Day Count Conventions
The denominator in your time factor is not always 365. Financial contracts specify a day count convention, and the wrong one throws off the calculation. Three cover most situations.
- 30/360. Assumes every month has 30 days and the year has 360. Standard for U.S. corporate and municipal bonds. It slightly overstates daily interest relative to the actual calendar.
- Actual/365. Uses the real number of days in the accrual period over 365. Common for auto loans and personal credit lines.
- Actual/Actual. Uses real days in both the numerator and denominator, with 366 in the denominator during leap-year portions. U.S. Treasury bonds use this method.
The gap matters. On a $500,000 commercial loan at 6%, 30/360 produces $83.33 of daily interest ($500,000 × 0.06 ÷ 360), while Actual/365 produces $82.19. Over a 90-day period, that is about $102 in difference. If your own numbers do not match a statement or payoff quote, day count is the first thing to check.
Accrued Interest When You Buy a Bond
Bonds pay interest on a set schedule, usually semiannually. If you buy a bond between those payment dates, you pay the seller for the interest that accrued while they still owned it. That amount is added to your purchase price. When the next coupon arrives, you receive the full payment for the entire period even though you only held the bond for part of it, which reimburses you for what you fronted.
To calculate that accrued interest, multiply the bond’s face value by the coupon rate, divide by the number of days in the payment period under the bond’s day count convention, and multiply by the number of days from the last coupon date to the settlement date. A $10,000 corporate bond paying 5% semiannually on a 30/360 convention, purchased 45 days after the last coupon, carries about $62.50 in accrued interest ($10,000 × 0.05 × 45/360).
One tax note, because it costs people money every year. Your broker will report the full coupon payment on Form 1099-INT, which makes the entire amount look like taxable income to you. It is not. The portion you paid to the seller is a return of your own capital.6Internal Revenue Service. Publication 550 – Investment Income and Expenses You report the full 1099-INT amount on Schedule B, then subtract the accrued interest you paid to the seller on a separate line labeled “Accrued Interest.”7Internal Revenue Service. Instructions for Schedule B (Form 1040) Skip that step and you overpay on interest that was never yours.