Accrued Interest

Interest that has been earned but not yet paid.

With savings bonds, the amount of interest a security earns before it is issued. In most cases, securities don’t earn interest before they’re issued. They do when the security is sold in a reopening or when the security’s dated date falls on a weekend or holiday. In these two circumstances, an investor may have to pay accrued interest when he or she buys a security. However, if an investor pays accrued interest, he or she gets the money back in the next interest payment. (The payment to the investor covers a full six-month interest-earning period. The investor’s payment to the government covers a shorter time frame at the start of that six-month period.) In this arrangement, the net interest paid to the investor is the interest earned only after the security is issued to him or her.