Coupons and accrued interest: why you pay more than the price
· beginner
Automated material · TradeAlmanac editorial deskDraft prepared by a language model from our stored data; not reviewed by an editor.
Having bought a bond, an investor often finds more was debited than the quote showed. The difference is accrued interest.
What it is
A coupon accrues continuously and is paid once a period. A seller who held the bond for part of the period earned part of the coupon — and the buyer reimburses them for it.
At the next payment the buyer receives the whole coupon, including the part they paid for. Net result: zero.
Why the quote excludes it
So that issues remain comparable. A bond quote shows the clean price and accrued interest is added separately; otherwise the price would climb between payments and drop on the coupon date — for a bond whose quality never changed.
Where it creates awkwardness
In tax accounting. Accrued interest paid is treated as an expense and the coupon received as income, so within a year the picture can look strange — Tax on coupons: how it changes the choice of bond.
Frequency
Coupons are paid at different frequencies across issues. The more frequent the payments, the sooner money returns to the holder and the shorter the duration, all else equal — Duration: why long bonds fall harder.
What to remember
Accrued interest is neither a commission nor an overpayment. It is a transfer of something already earned between two holders.
Related: Bonds from scratch: what the income is made of and Yield to maturity: the only honest number a bond has.
Draft prepared by a language model from our stored data; not reviewed by an editor.
Model: claude-opus-5
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