Accrued Interest
Intérêts courus in French
Quick definition
Accrued interest is the interest a bond has earned since its last coupon payment. When you buy a bond between coupon dates, you pay the seller this amount on top of the quoted price, compensating them for the days they held the bond.
Why accrued interest exists
A bond earns interest every single day, but it only pays it out every six months. That gap creates a fairness problem whenever a bond changes hands between coupon dates: the seller held the bond and earned interest for part of the period, yet the entire coupon will land in the buyer's account.
Accrued interest fixes this. At settlement, the buyer pays the seller the interest earned from the last coupon date up to the settlement date. The seller walks away with exactly the interest they earned for the days they held the bond, and the buyer fronts that amount knowing they will get it back.
On the next coupon date, the buyer receives the full coupon, even though they only held the bond for part of the period. The portion they paid the seller at purchase is recovered, and the rest is the interest they genuinely earned. Nobody gains or loses; the coupon is just split by calendar days.
Clean price vs. dirty price
Bond prices are quoted without accrued interest. The quoted figure is the clean price, and it is what you see on a dealer screen or a quote page. What you actually pay at settlement is the dirty price, also called the invoice price: the clean price plus accrued interest.
Quoting clean keeps price movements meaningful. The dirty price mechanically climbs a little every day as interest accrues, then drops by the full coupon on payment date, even if nothing happened in the market. The clean price strips out that sawtooth so any change reflects actual moves in rates or credit. Just remember the number on your trade confirmation will be higher than the quote, and that the yield to maturity is computed from the full picture, not the clean price alone.
How it is calculated in Canada
The formula is a simple pro-rating of the coupon: accrued interest = coupon payment multiplied by days since the last coupon, divided by days in the coupon period.
The subtlety is how you count the days. Canadian bonds use the Actual/Actual (Canada) day-count convention: actual calendar days elapsed over the actual length of the current coupon period. Our Bond Calculator applies this same convention, so the accrued interest it shows matches what appears on a Canadian trade confirmation. Other markets use different conventions (such as 30/360 for many US corporate bonds), which is why the same bond math can produce slightly different accrued amounts across borders.
The tax angle
Accrued interest matters at tax time. The full coupon you receive is reported to you as interest income, even though part of it was really a refund of the accrued interest you paid the seller. The fix: the accrued interest you paid at purchase reduces the interest income you report, so you are only taxed on the days you actually held the bond. Keep your trade confirmation, since the accrued amount is itemized there.
The seller reports the accrued interest they received as income for their holding days. And since bond interest is fully taxable at your marginal rate in a non-registered account, with none of the favourable treatment given to capital gains or dividends, bonds often sit better inside an RRSP or TFSA, where the coupons and the accrued-interest bookkeeping are sheltered entirely.
In Canada
Accrued interest changes hands on the settlement date, not the trade date, so the day count runs to settlement (typically one business day after the trade for Canadian bonds, as of July 2026). Government of Canada, provincial and most corporate bonds all pay semi-annual coupons and accrue on the Actual/Actual (Canada) convention, so the same formula covers nearly every bond a Canadian investor will buy.
Worked example
A $1,000 face value bond pays a 4% annual coupon, so $20 every six months. You buy it 90 days into a 182-day coupon period. Accrued interest is $20 multiplied by 90 divided by 182, or about $9.89.
If the clean price is $980, your invoice shows the dirty price: $980 plus $9.89, or $989.89. Ninety-two days later the full $20 coupon arrives in your account. You recover the $9.89 you fronted, and the remaining $10.11 is the interest you earned for your 92 days of ownership.
Related terms
Reviewed by Alexandre Bernier, CFP®, CIM®, PFP®·Updated July 2026