Accrual Rate

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.

RELATED TERMS
  1. Accrue

    The ability for something to accumulate over time. In finance, ...
  2. Accruals

    Accounts on a balance sheet that represent liabilities and non-cash-based ...
  3. Accrued Interest

    1. A term used to describe an accrual accounting method when ...
  4. Range Accrual

    A form of interest accrual in which the coupon rate is only earned ...
  5. Accrual Bond

    A bond that does not pay periodic interest payments. Instead, ...
  6. Accrual Accounting

    Accrual accounting is an accounting method that measures the ...
Related Articles
  1. Investing

    What does Accrual Mean?

    In accrual-based accounting, transactions are recorded on the books as they occur, even if payment has not yet been received or made. Accruals represent liabilities and non-cash-based assets. ...
  2. Markets

    What is a Forward Rate?

    Forward rate is used in both bond and currency trading to represent the current expectations of future bond interest rates or currency exchange rates.
  3. Markets

    What's Accrued Interest?

    Accrued interest has two meanings. In accounting, it is interest that has been earned, but the time for payment has not yet occurred.
  4. Markets

    Savings Bonds For Income And Safety

    Bonds offer undeniable benefits to investors, including safety and tax advantages.
  5. Investing

    What is Cash Basis Accounting?

    Cash basis accounting recognizes revenues and expenses at the time cash is paid or received.
  6. Markets

    Simple Interest Loans: Do They Exist?

    Yes, they do. Here is what they are – and how to use them to your advantage.
  7. Managing Wealth

    4 Ways Simple Interest Is Used In Real Life

    Simple interest works in your favor when you're a borrower, but against you when you're an investor.
  8. Investing

    Operating Cash Flow: Better Than Net Income?

    Differences between accrual accounting and cash flows show why net income is easier to manipulate.
  9. Managing Wealth

    Dissecting the Simple Interest Formula

    Simple interest ignores the effect of compounding: it's only calculated on the principal amount. This makes it easier to calculate than compound interest.
  10. Markets

    What Does Principal Mean?

    For banks, principal refers to the amount due on a loan, and is used to calculate interest payments.
RELATED FAQS
  1. What is accrual accounting used for in finance?

    Read about the accrual method of accounting, its uses and rules, and why it is considered so important for investors, lenders ... Read Answer >>
  2. What is the difference between an accrual and an account payable?

    Understand the difference between an accrual and an account payable. Learn how an accrual and an account payable affect a ... Read Answer >>
  3. When are expenses and revenues counted in accrual accounting?

    Take an in-depth look at the treatment of revenues and expenses within the accrual method of accounting and learn why many ... Read Answer >>
  4. How can I set up an accrual accounting system for a small business?

    Read about some of the steps a small business should follow when establishing an accrual accounting system to track revenues ... Read Answer >>
  5. When are businesses required to use accrual accounting?

    Determine when the accrual accounting method must be used instead of cash accounting. Most businesses use accrual accounting ... Read Answer >>
  6. Why does GAAP require accrual basis rather than cash accounting?

    Discover why GAAP requires the accrual basis for accounting rather than the cash basis, and learn why it is important for ... Read Answer >>
Hot Definitions
  1. Quantitative Trading

    Trading strategies based on quantitative analysis which rely on mathematical computations and number crunching to identify ...
  2. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  3. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  4. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  5. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  6. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
Trading Center