How to Calculate Accrued Interest on a Bond: Conventions and Examples

To calculate accrued interest on a bond, multiply the bond’s periodic coupon payment by the fraction of the coupon period that has passed since the last payment date. In formula form: Accrued Interest = (Annual Coupon Rate × Par Value ÷ Payments Per Year) × (Days Since Last Coupon ÷ Days in Coupon Period). When you buy a bond between coupon dates, this is the amount you owe the seller on top of the quoted price — compensation for the days they held the bond without collecting a coupon.

What You Need Before Running the Numbers

Every accrued interest calculation uses the same five inputs, all of which appear on your trade confirmation or in the bond’s offering documents:

Par value — the face amount of the bond. Corporate bonds typically use $1,000 per bond. Municipal bonds are usually issued in $5,000 minimum denominations, though some are issued at $1,000.¹²
Annual coupon rate — the fixed percentage of par value the issuer pays each year. A 5% coupon on a $1,000 bond means $50 per year in interest.
Payment frequency — how often the issuer pays. Most U.S. bonds pay semiannually, which splits the annual interest into two equal payments.
Last coupon date — the most recent date a coupon was paid. This is the start of your accrual window.
Settlement date — the date the trade finalizes and ownership transfers. For most securities, this falls one business day after the trade date (T+1) under SEC Rule 15c6-1. Government and municipal securities are technically exempt from that rule but generally follow the same T+1 convention in practice.³⁴

Pick the Right Day Count Convention

The day count convention tells you how to measure time between two dates. Different bond types use different conventions, and using the wrong one produces the wrong answer.

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 days. For municipal bonds, the Municipal Securities Rulemaking Board mandates this method under Rule G-33.⁵ The Rule G-33 day count formula is:

Days = (Y2 − Y1) × 360 + (M2 − M1) × 30 + (D2 − D1)

Y, M, and D are the year, month, and day of the two dates. From March 1 to July 15 of the same year: (0 × 360) + (4 × 30) + (15 − 1) = 134 days. A full semiannual period is always 180 days under 30/360.

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 full coupon period.⁶ A 31-day month contributes 31 days, February contributes 28 or 29 depending on the year, and the denominator reflects the actual length of that specific coupon period rather than a fixed 180.⁷ Two Treasuries with identical coupon rates can produce slightly different daily interest amounts depending on how their coupon periods fall across leap years or months of different lengths.

Corporate Bond Example (30/360)

Say you’re buying a corporate bond with these terms:

Par value: $1,000
Annual coupon rate: 6%
Payment frequency: Semiannual, coupons paid 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.⁵

Step 3. A full semiannual period under 30/360 is 180 days.

Step 4. Apply the formula: $30.00 × (134 ÷ 180) = $30.00 × 0.7444 = $22.33.

You owe the seller $22.33 in accrued interest on top of the bond’s quoted market price.

Treasury Bond Example (Actual/Actual)

Now a Treasury bond:

Par value: $1,000
Annual coupon rate: 4%
Payment frequency: Semiannual, coupons paid 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. Actual calendar days from May 15 to August 20: 16 (rest of May) + 30 (June) + 31 (July) + 20 (through August 20) = 97 days.

Step 3. Actual calendar days in the full coupon period May 15 to November 15: 16 + 30 + 31 + 31 + 30 + 31 + 15 = 184 days.⁶

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. Had this coupon period spanned February in a leap year, the denominator would shift, changing the result. That’s the precision Actual/Actual is designed to capture.

A note on rounding. For Treasury securities, the official rule computes daily interest to five decimal places per $1,000 of par, then multiplies by the number of $1,000 units you hold.⁷ Corporate and municipal accrued interest is rounded to the nearest cent for settlement. In either case, carry extra decimals in intermediate steps and round only at the end.

Clean Price, Dirty Price, and What Settles

The price you see quoted on a brokerage screen is the clean price, meaning the bond’s market value without accrued interest. The cash amount you actually pay is the dirty price:

Dirty Price = Clean Price + Accrued Interest

In the corporate example above, a clean price of $980 produces a settlement amount of $980 + $22.33 = $1,002.33. The accrued interest portion isn’t part of your capital investment. You recover it when the next coupon arrives, since the issuer will pay you the full six months of interest even though you only held the bond for part of that period.

Checking the accrued interest figure on your trade confirmation against your own calculation is the simplest way to catch an error before the trade settles.

When the Standard Formula Doesn’t Apply

Two situations sit outside the ordinary accrued interest calculation, and it’s worth knowing them so you don’t apply the formula where it doesn’t fit.

Zero-coupon bonds don’t make periodic payments, so there’s no coupon to accrue between dates. Instead, the discount between purchase price and face value is treated as interest and accreted each year under the Original Issue Discount (OID) rules, based on the bond’s yield to maturity.⁸ The IRS requires you to include OID in gross income each year even though you receive no cash until maturity.⁹ Tax-exempt obligations, U.S. savings bonds, and instruments maturing in a year or less are exempt from the annual inclusion rule.

Defaulted bonds and income bonds trade “flat,” meaning the buyer pays only the quoted price with no accrued interest added. FINRA guidance provides that purchasers are generally not expected to include accrued interest in the price for a defaulted security, and accrued interest cannot be included in the bond’s current market value for margin purposes.¹⁰ If you’re buying a distressed or income bond, confirm with your broker whether the trade settles flat.

Reporting Accrued Interest on Your Taxes

Once you’ve paid or received accrued interest, it affects your tax return. Interest income, including accrued interest received on a bond sale, is included in gross income under federal tax law.¹¹

If you sold a bond between coupon dates, the accrued interest the buyer paid you is ordinary interest income for the year of the sale, not part of your capital gain or loss on the bond’s price.¹²

If you bought a bond between coupon dates and later received the full coupon, your Form 1099-INT will include the entire coupon in Box 1, even though part of it repays the accrued interest you paid the seller.¹³ To avoid being taxed on money that was never your income, list the full interest amount from your 1099-INT on Schedule B, then enter “Accrued Interest” as a subtraction for the amount you paid the seller.¹² Keep the trade confirmation showing the accrued interest figure. You’ll need it if the IRS questions the adjustment.

1
Municipal Securities Rulemaking Board. Municipal Bond Basics
2
Municipal Securities Rulemaking Board. How Are Municipal Bonds Quoted and Priced
3
U.S. Securities and Exchange Commission. Shortening the Securities Transaction Settlement Cycle
4
FINRA. Understanding Settlement Cycles – What Does T Plus 1 Mean for You
5
MSRB. Rule G-33 Calculations
6
U.S. Department of the Treasury. Interest Rates – Frequently Asked Questions
7
eCFR. 31 CFR Appendix B to Part 356 – Formulas and Tables
8
Internal Revenue Service. Guide to Original Issue Discount (OID) Instruments
9
Office of the Law Revision Counsel. 26 USC 1272 – Current Inclusion in Income of Original Issue Discount
10
FINRA. Interpretations of Rule 4210
11
Office of the Law Revision Counsel. 26 USC 61 – Gross Income Defined
12
Internal Revenue Service. Publication 550 – Investment Income and Expenses
13
Internal Revenue Service. Instructions for Forms 1099-INT and 1099-OID