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. Class 3-6 Bonds

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

  6. Promotional CD rate (Bonus CD rate)

    A limited-time offer of a higher rate of return on a certificate ...
Related Articles
  1. How Bond Market Pricing Works
    Bonds & Fixed Income

    How Bond Market Pricing Works

  2. How does the money from the interest ...
    Investing

    How does the money from the interest ...

  3. Taxation Rules For Bond Investors
    Taxes

    Taxation Rules For Bond Investors

  4. What constitutes an
    Investing

    What constitutes an "intention to call ...

comments powered by Disqus
Hot Definitions
  1. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities.
  2. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
  3. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  4. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  5. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  6. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
Trading Center