Accumulation Bond

AAA

DEFINITION of 'Accumulation Bond'

A bond issued at an original issue discount (OID). This means that the interest accumulates but is not paid until maturity; there are no semi-annual coupon payments as with most bonds.

These bonds are also referred to as "accrual bonds."

INVESTOPEDIA EXPLAINS 'Accumulation Bond'

As accumulation bonds are always sold at an OID, they are always sold below face value, and the IRS considers the OID a form of interest. Even though the bondholder is not receiving coupon payments, the interest on the bond is still accumulating and must be reported as interest income on the bondholder's tax return each year.

Some investors like to use accumulation bonds in their financial plans, as they know the exact amount they will receive at a future point in time when the bond matures, even though they don't receive interim cash flows.

RELATED TERMS
  1. Coupon

    The interest rate stated on a bond when it's issued. The coupon ...
  2. Original Issue Discount - OID

    The discount from par value at the time that a bond or other ...
  3. Accrual Bond

    A bond that does not pay periodic interest payments. Instead, ...
  4. Surrender Period

    The amount of time an investor must wait until he or she can ...
  5. Class 3-6 Bonds

    Several classes of noninvestment grade bonds held by an insurance ...
  6. Impact investing

Related Articles
  1. Bonds & Fixed Income

    How Bond Market Pricing Works

    Learn the basic rules that govern how bond prices are determined.
  2. Investing

    How does the money from the interest on my bond get to me?

    When you buy a regular coupon bond, you are entitled to a coupon, which is typically paid at regular intervals, and the face value of the bond (the amount you initially invested), which is typically ...
  3. Taxes

    Taxation Rules For Bond Investors

    Several factors affect the taxable interest that must be reported. Learn more here.
  4. Investing

    What constitutes an "intention to call a debt instrument before maturity" for tax purposes?

    When a bond is sold for a capital gain, the seller will face taxation on the profit. The profit from the sale will either be treated a capital gain or ordinary income depending on the nature ...
  5. Promising high yields that the Eurozone and U.S. can't match, West African sovereign debt has caught the attention of savvy investors.
    Bonds & Fixed Income

    Interested In West African Debt? Look Here First

    Promising high yields that the Eurozone and U.S. can't match, West African sovereign debt has caught the attention of savvy investors.
  6. Pimco has stabilized its Total Return fund, but its returns are still shaky and its sales load is still a fat one.
    Professionals

    A Look At Pimco's Total Return Fund Post-Gross

    Pimco has stabilized its Total Return fund, but its returns are still shaky and its sales load is still a fat one.
  7. Options & Futures

    Writing Covered Calls On ETFs

    The strategy of writing covered calls on ETFs can limit your losses and hedge risk, but they cap your upside potential.
  8. Bonds & Fixed Income

    What determines the price of a bond in the open market?

    Learn more about some of the factors that influence the valuation of bonds on the open market, and why bond prices and yields move in opposite directions.
  9. Taxes

    Why should I keep records on my tax-exempt bond transactions?

    Keep your purchase records on all investments, including tax-exempt bonds. Though the interest is tax-free, you may owe taxes if you sell your bond for a gain.
  10. Bonds & Fixed Income

    How long will it take for a bond to reach its face value?

    Learn when different savings bonds reach face value, and determine the best time to cash them in to get the highest return on your money.

You May Also Like

Hot Definitions
  1. Christmas Island Dollar

    The former currency of Christmas Island, an Australian island in the Indian Ocean that was discovered on December 25, 1643. ...
  2. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
  3. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  4. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  5. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  6. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
Trading Center