Accumulation Bond


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."

BREAKING DOWN '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.

  1. Coupon

    The interest rate stated on a bond when it's issued. The coupon ...
  2. Accrual Bond

    A bond that does not pay periodic interest payments. Instead, ...
  3. Original Issue Discount - OID

    The discount from par value at the time that a bond or other ...
  4. Maturity

    The period of time for which a financial instrument remains outstanding. ...
  5. Capitalization Rate

    The rate of return on a real estate investment property based ...
  6. Term Deposit

    A deposit held at a financial institution that has a fixed term, ...
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