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.

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RELATED FAQS
  1. What does it mean when interest "accrues daily?"

    In financial terminology, "accrues" means the same thing as "accumulates." Interest is considered accrued when it is added ... Read Full Answer >>
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    Using private and federal student loans to finance a college education is a common funding strategy, but students are often ... Read Full Answer >>
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