Accrued Interest Explained – Definition & Calculation Guide 2025

Ever wondered what is accrued interest and why it’s important for your finances? Simply put, accrued interest is the interest that builds up on a loan, bond or investment over a specific time even before you pay or receive it. 

Understanding it helps you: 

• Know exactly how much you owe on your loan before your EMI is due 

• Track the returns on your investments even before maturity 

• Plan better for payments, savings, and taxes 

Whether you’re taking a personal loan, buying a bond, or saving in a bank account, knowing how to calculate accrued interest helps you stay financially smart. 

What is Accrued Interest? 

Accrued interest meaning: It is the amount of interest that has accumulated on a loan or investment but hasn’t been paid or received yet. 

This works on the accrual basis of accounting, meaning income and expenses are recorded when they are earned or incurred, not when money actually changes hands. 

How It Works (Previously “How Accrued Interest Works”) 

Three key factors decide how much interest accrues: 

• Principal Amount – The higher the loan or deposit amount, the more interest accrues. 

• Interest Rate – A higher rate means more interest is added each day. 

• Time Period – The longer the accrual period, the more interest you owe or earn. 

So, if you have a loan, interest keeps adding up daily until you pay. Similarly, if you have an FD or bond, interest keeps adding until the payout date. 

How to Calculate Accrued Interest? 

Here’s the standard formula used by banks and financial institutions to calculate accrued interest: 

Accrued Interest = Principal Amount × (Annual Interest Rate ÷ 365) × Number of Days 

This formula assumes daily interest accrual, which is common for loans, deposits and bonds. 

Example 1 – On Loans 

You borrow ₹1,50,000 at 8% annual interest, payable monthly. 

Accrued Interest = 1,50,000 × (8 ÷ 100 ÷ 365) × 30   

= ₹986.30 
This is the interest added to your next EMI. 

Example 2 – On Investments 

You invest ₹10,000 in a bond with a 5% annual coupon rate, payable semi-annually. 

Accrued Interest = 10,000 × (5 ÷ 100 ÷ 365) × 60   

= ₹82.19 

This is the interest you’ve earned so far and will receive in the next payout. 

Types of Accrued Interest 

• Simple Interest – Calculated only on the principal. 

• Compound Interest – Calculated on principal + previously accrued interest, grows faster. 

• Accrued Interest Income – Earnings from savings accounts, FDs, RDs, or bonds. 

• Accrued Interest Expenses – Interest you owe on loans or credit cards but haven’t paid yet. 

Difference Between Accrued and Paid Interest 

Aspect	Accrued Interest	Paid Interest
Timing	Interest built up but unpaid	Interest already paid/received
Accounting	Recorded before payment	Recorded after payment
Impact	Increases future liability or earnings	Clears liability or confirms income

Which Financial Products Use Accrued Interest? 

You’ll find accrued interest in: 

• Savings Accounts & Zero Balance Savings Accounts – Interest accrues daily, even without a minimum balance. 

• Fixed & Recurring Deposits – Accrues daily or quarterly till maturity. 

• Loans – Includes personal, home, education, and auto loans; interest accrues until repayment. 

• Credit Cards – Accrues daily on unpaid balances, usually at high rates. 

• Bonds & Debentures – Accrued interest is added to the price if bought between payout dates. 

The interest rate you pay or earn directly affects your finances. That’s why Fibe offers Instant Personal Loans up to ₹5 lakhs with competitive interest rates.  

Get quick approvals and easy applications through the Fibe app and borrow smartly. 
 

FAQs on Accrued Interest 

1. How do I calculate accrued interest? 
Use this formula: 

Accrued Interest = Principal × (Rate ÷ 365) × Number of Days 
This is the easiest way to calculate accrued interest on loans or investments. 

2. What is the difference between interest and accrued interest? 

Interest is the total charge on the principal for a specific period. Accrued interest is the part that has been built up so far but hasn’t been paid or received yet. 

3. Is accrued interest taxable? 

Yes, it is taxable under the Income Tax Act, 1961 and subject to TDS.