DEFINITION of 'Accrual Rate'

The rate of interest that is added to the principal of a financial instrument between cash payments of that interest. For example, a six-month bond with interest payable semiannually will accrue daily interest during the six-month term until it is paid in full on the date it becomes due.

BREAKING DOWN 'Accrual Rate'

Accrual rates are also used in nonfinancial contexts, such as for vacation or pension accrual rates. As well, they are often used in accrual accounting, which is used by most businesses; cash-basis accounting is most commonly used by individuals.

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